A power of appointment can be created by the terms of a trust agreement and the settlor can establish the parameters for the exercise of the power. The powerholder could be granted the authority to modify the administrative terms of the trust to account for tax law changes, modify distribution discretion standards, or appoint assets outright or in trust for the specified beneficiaries. If the settlor is comfortable allowing a designated party to make changes, incorporating a limited power of appointment in a trust agreement can offer significant flexibility to modify the terms of a trust. DECANTING Decanting allows a trustee to “pour” the assets of the “first” trust into a “new” trust with modified or improved terms intended to better meet the needs of the parties. Under the Uniform Trust Decanting Act, the trustee’s discretionary authority will impact the extent of a fiduciary’s decanting power. When a trustee’s distribution discretion is limited to an ascertainable standard (e.g., “health, education, maintenance and support”) or a reasonably definite standard, the trustee is considered to have “limited” distributive discretion.9 Under a limited discretion standard, the second trust may be created or administered under the law of any jurisdiction; however, in the aggregate, the beneficiaries must retain substantially the same beneficial interests in the “second” trust as they had in the first trust.10 When a trustee’s distribution discretion is not limited to an ascertainable or reasonably definite standard, the fiduciary is considered to have “expanded” distributive discretion.11 Under an expanded discretion standard, the decanting power can be used to achieve a variety of objectives so long as the decanting power is not used to add certain beneficiaries to the second trust who are not beneficiaries of the first trust nor may the power be used to reduce or eliminate certain vested interests.12 The fiduciary generally may exercise the decanting power without the consent of any person and without obtaining court approval.13 However, the fiduciary is required to provide notice of an intended exercise of the decanting power at least 60 days before the exercise to certain individuals.14 Depending on the distribution standard and the intended changes, trust decanting is another useful tool for practitioners. CONCLUSION Prior to any modification of a trust, it is critical that practitioners consider whether the desired changes could result in adverse gift, estate, and/or generation skipping transfer tax consequences to the trust, its settlor, or its beneficiaries. While it is impossible to predict the future, the modification tools afford the flexibility to make necessary adjustments as circumstances change. Beau Morgan and Austin Hoffman are attorneys at Koley Jessen, focusing their practices on estate planning and business succession planning. They work closely with families, individuals, and business owners, providing a range of services from preparation of basic estate plan documents to the development and implementation of sophisticated wealth transfer techniques and business succession strategies to achieve the client’s personal, financial, and business-based objectives. If you would like to discuss a client matter with Morgan and Hoffman, you can reach them at (402) 390-9500 or beau.morgan@koleyjessen.com and austin.hoffman@koleyjessen.com, respectively. 1 Neb. Rev. Stat. § 30-3837(a). 2 Neb. Rev. Stat. § 30-3837(b). 3 Neb. Rev. Stat. § 30-3837(e). 4 Neb. Rev. Stat. § 30-3811(b). 5 Neb. Rev. Stat. § 30-3824(6), Neb. Rev. Stat. § 30-3825. 6 Neb. Rev. Stat. § 30-3811(c). 7 Neb. Rev. Stat. § 30-3811(e). 8 Neb. Rev. Stat. § 30-4602(13). 9 Neb. Rev. Stat. § 30-4512(a). 10 Neb. Rev. Stat. § 30-4512(c). 11 Neb. Rev. Stat. § 30-4502. 12 Neb. Rev. Stat. § 30-4511. 13 Neb. Rev. Stat. § 30-4507(b). 14 Neb. Rev. Stat. § 30-4507(c). PARTNER WITH US TODAY! Selling your business? Get the best deal possible with our experienced Mergers & Acquisitions professionals. Results Business Advisors 12020 Shamrock Plaza #200 Omaha, NE 68154 402.913.9080 www.resultsba.com Scan the QR code to watch the Mergers & Acquisitions Professional video. https://www.resultsba.com/hire-ama-professional/ 19 nescpa.org
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