Chapter 28 - § 28.3 • AUTHORITY FOR A TRUST DECANTING

• Jurisdiction: Colorado

§ 28.3 • AUTHORITY FOR A TRUST DECANTING

There are several sources of authority upon which a trustee may rely to effectuate a decanting of trust assets, including common law authority, statutory authority, and authority granted in the trust agreement. For a Colorado trust, trustees likely will rely upon the Colorado Uniform Trust Decanting Act (Act) (effective August 10, 2016), decanting provisions contained in the trust agreement, or a combination of both.

§ 28.3.1—Historical Basis for a Trust Decanting

Historically, decanting has been viewed as the exercise of a fiduciary power of appointment held by the trustee. Under the Restatement (Second) of Property: Donative Transfers § 11.1 cmt. d, a trustee's unlimited power to make distributions to or for the benefit of an individual is a power of appointment, and the holder of a power of appointment may appoint the property further in trust for the benefit of the object of the power. See In re Estate of Spencer, 232 N.W.2d 491 (Iowa 1975); Restatement (Second) § 19.3. Therefore, a trustee with unlimited power to make distributions may distribute such property in further trust for the beneficiaries, instead of distributing the property outright. This traditional view of decanting may not support a modern decanting in Colorado, as Colorado statutes define a power of appointment as a power exercised in a nonfiduciary capacity. C.R.S. § 15-2.5-102(14).¹

§ 28.3.2—Common Law

Several cases from states other than Colorado have found a common law fiduciary power to decant in line with the historical view and/or trust language allowing a trustee to distribute property "for the benefit of" a beneficiary.² Currently, there is no opinion from a Colorado court addressing a common law decanting power.

§ 28.3.3—Governing Instrument

The settlor of a trust may grant the trustee an express power to decant or to distribute trust property to another trust in the trust agreement. Estate planning attorneys in Colorado should consider whether to include such an express power in their trust forms and whether a provision granting such power should expressly coordinate with the Act. The Act is non-exclusive and does not limit the ability of a settlor to provide for specialized decanting powers that may not exist in the statutory framework.³

§ 28.3.4—Statutes

As of March 2019, more than 25 states have enacted decanting statutes. Eight of those have enacted a version of the Uniform Trust Decanting Act (UTDA), including Colorado. See ...