Houston Estate Planning and Elder Law Attorney Blog
Many Texas trusts in administration today were written decades ago, under tax rules, family circumstances, and benefit programs that have since changed. A trustee holding one of these documents often assumes that the word “irrevocable” leaves no room to fix it. Texas law gives trustees and courts two separate routes, and the right one depends on how much discretion the trust already grants.
A Texas trustee with discretion to distribute principal can often modify an irrevocable trust by decanting, which means distributing its assets into a new trust with updated terms. Property Code §§ 112.071 through 112.087 allow it after written notice to beneficiaries, without a court order. Where decanting is unavailable or contested, a trustee or beneficiary may ask a court to modify, reform, or terminate the trust under § 112.054. McCulloch & Miller helps trustees in Austin and across Texas choose between the two as part of its trust planning practice.
What Decanting Means Under Texas Law
Decanting is a trustee’s distribution of principal from an existing irrevocable trust into a second trust, using the distribution authority the first trust already grants.
Only an authorized trustee can do it. Under Property Code § 112.071(1), that means a person other than the settlor who has authority under the trust to distribute principal to one or more current beneficiaries. The person who created the trust cannot decant it, even while serving as trustee.
Full Discretion or Limited Discretion
The wording of the trustee’s distribution power sets how far a decanting can reach. The statute divides distribution powers into two kinds.
- Limited discretion: a power to distribute principal under mandatory terms, or limited by an ascertainable standard such as health, education, support, or maintenance (§ 112.071(6)).
- Full discretion: any distribution power that is not limited in those ways (§ 112.071(5)).
Under § 112.072, a trustee with full discretion may move principal into a second trust for some or all of the current and remainder beneficiaries. That trustee may also grant a beneficiary a power of appointment. A trustee with limited discretion is held tighter. Under § 112.073, the second trust must keep the same current and remainder beneficiaries and the same distribution language. A limited decanting can modernize administrative terms, but it cannot change who benefits. Either way, the trustee must act in good faith, in keeping with the trust’s terms and purposes, and in the beneficiaries’ interests.
Call (713) 333-8900 and the firm will schedule a consultation to go through your plan.
The Notice Beneficiaries Receive, and Their Right to Object
Decanting requires no consent from the settlor or beneficiaries and no court approval, provided the trustee gives the written notice described in § 112.074. The notice goes to all current and presumptive remainder beneficiaries. It must state their right to object and to petition a court, and it must include copies of both the existing trust and the proposed new one. It must also go out no later than the 30th day before the proposed distribution, by registered or certified mail or in person unless waived.
A written objection received before the effective date allows the trustee or the beneficiary to take the question to court under § 112.078. In that proceeding the trustee bears the burden of proving the distribution furthers the trust’s purposes, follows its terms, and serves the beneficiaries.
The statute also sets limits that no notice can cure. A general no-amendment clause or a spendthrift clause does not block decanting under § 112.084(b). Section 112.085, however, forbids using it to cut a beneficiary’s current, vested right to a mandatory distribution or withdrawal, to reduce a trustee’s liability, or to eliminate a provision allowing someone to remove the trustee.
When a Court Modification Is the Better Route
Section 112.054 lets a court change the trustee, modify terms, permit acts the trust forbids, or terminate the trust, on the petition of a trustee or beneficiary. The grounds include circumstances the settlor did not know about or anticipate, where the change would further the trust’s purposes, and a change needed to qualify a distributee for governmental benefits without contradicting the settlor’s intent. That last ground often arises where a beneficiary has developed a disability and the trust’s distribution terms threaten eligibility, a situation the firm addresses through its special needs planning work.
The court must conform the order as nearly as possible to the settlor’s probable intention, and may weigh a spendthrift clause without being bound by it. A court can also reform a trust to correct a drafting error, but only on clear and convincing evidence of what the settlor intended. Proceedings concerning trusts are heard in district court, so an Austin trustee would ordinarily file in a Travis County district court.
Questions Texas Trustees Ask About Changing a Trust
Can the Person Who Created the Trust Decant It?
No. Section 112.071(1) defines an authorized trustee as a person other than the settlor, so a settlor serving as trustee cannot use the decanting statute.
Does a Spendthrift Clause Prevent Decanting?
No. Section 112.084(b) provides that a spendthrift clause or a general prohibition on amending or revoking the trust does not prevent a decanting. An express prohibition on this kind of distribution does.
How Much Notice Do Beneficiaries Receive?
At least 30 days. The notice must go out no later than the 30th day before the proposed distribution date, by registered or certified mail or in person, unless the beneficiary waives it in writing.
Choosing Between Decanting and a Court Petition
Decanting can be the faster and quieter option for a trustee who has the power to do it. A trustee whose power is limited, or whose beneficiaries are likely to object, may do better asking a court from the start. The firm reviews the trust language, the distribution power, and the family’s goals as part of its trust administration practice before recommending either path. If you would like the firm to review your plan, call (713) 333-8900 or contact McCulloch & Miller to get started.