On August 10th, the Governor signed into law two bills (former HB 4662, now Public Act 97-0920, and former HB 4663, now Public Act 97-0921), making Illinois one of a growing number of states with statutes that address trust decanting and directed trusts. The new statutes will go into effect January 1, 2013. This client alert covers the trust decanting statute. Our prior client alert addressed the directed trust statute.
Section 16.4 is the new section added to the Illinois Trusts and Trustees Act (the “Act,” codified at 760 ILCS 5/1 et seq.) on trust decanting. Under the statute, a trustee with discretion to make distributions to a beneficiary of a trust (the “first trust”) may exercise that discretion by making the distribution to a separate trust (the “second trust”) instead of outright to the beneficiary. With the power to decant, a trustee may be able to address the needs of a disabled beneficiary; address out-of- date, incomplete, or inadequate administrative provisions; divide trusts; correct drafting mistakes; or address changed circumstances. Whether, and to what extent, the trustee may decant and what is permissible and impermissible for the terms of that second trust will depend on a number of factors, as described below.
