Key Points

• Decanting requires a valid, present power to distribute principal. Under Delaware law, decanting is only permissible if the governing trust instrument already grants the fiduciary a present authority to invade principal.
• Beneficiary consent cannot cure a lack of statutory authority. Consents, acknowledgments, or “non-objection” letters do not create a distribution power where none exists.
• Remedies can be broad and include tracing and restoration. If a decanting fails, the court may order extensive asset tracing and impose constructive trusts or equitable liens to restore the original trust’s assets and value.
• Delaware’s Title 12 provides flexible alternatives that often deliver similar outcomes with less litigation exposure.

Delaware’s Court of Chancery has again emphasized that decanting is a limited tool that must be grounded in actual authority under the governing instrument and statute. In a recent memorandum opinion arising out of a multiyear dispute over an attempted decanting between related family trusts, the court held that a purported decanting under 12 Del. C. § 3528 was invalid because the trustee lacked a present power to distribute principal. The court characterized the decanting as a “null act,” treated the assets as never having left the original trust, and directed targeted tracing and restorative remedies to make the original trust whole. The decision also illustrates how equitable defenses, beneficiary consents and practical remedial mechanics can dominate outcomes when a decanting goes awry.

What happened

The settlor of an irrevocable trust had created a successor Delaware trust intended to reshape dispositive terms and timing. To implement the change, counsel attempted to “decant” the corpus of the original trust into the new trust under 12 Del. C. § 3528. The key problem was structural: The original governing instrument did not give the acting fiduciary a present power to invade principal. Despite warnings that this authority was absent, the parties proceeded. Years later, after family circumstances shifted (including divorce), litigation followed.

After trial, the court concluded that the original trust did not confer the necessary power to distribute principal and therefore the statutory predicate for decanting was missing. The attempted funding of the new trust was void; the assets were deemed never to have left the original trust. The court then turned to practical consequences, directing asset tracing under the Restatement (Second) of Trusts to restore property and value to the original trust, including where trust assets had been used to acquire or maintain other property post-transaction. The court further rejected beneficiary counterclaims on equitable grounds, holding that a beneficiary who orchestrated and promoted the faulty decanting could not obtain equitable relief from those who implemented his plan. It also noted that beneficiary consent can bar later claims absent improper inducement or lack of material information. A no‑contest clause in the new trust did not change the result under the facts presented.

Key takeaways for decanting under Delaware law

First, decanting authority remains strictly derivative of an existing fiduciary power to distribute principal. If the governing instrument does not confer a present power to invade principal (or otherwise satisfy the statute’s predicates), the decanting cannot stand. Drafting and fiduciary review must begin with a close reading of the original instrument’s distribution powers, any constraints on principal invasions, and any express limitations on.

Second, “consent paperwork” does not cure a lack of statutory authority. Beneficiary acknowledgments or non-objection letters do not supply a missing distribution power. Moreover, consents can later bar the consenting party’s claims unless procured by improper conduct or given without knowledge of material facts.

Third, remedial exposure can be expansive. When a decanting fails, Delaware courts may treat the transfer as a nullity, require restoration of original trust assets, and, where trust property or its proceeds were used to fund or maintain other assets, authorize tracing to recapture value through constructive trust or equitable lien theories. Fiduciaries should expect discovery on flows of funds and may need accounting support.

Fourth, equitable defenses matter. The Delaware Court of Chancery is a court of equity, which holds, protects and exercises equitable powers. A party who conceived and advanced the decanting may be disabled by unclean hands from seeking equitable relief against those who carried it out, even if the decanting is ultimately invalid.

Fifth, no‑contest clauses are not a panacea. A safe‑harbor petition for instructions or an action focused on the validity of a transfer may not trigger forfeiture language aimed at challenges to the trust instrument itself, depending on wording and context.

Practical checklist before pursuing a decanting

A successful decanting turns on rigorous front‑end diligence. Fiduciaries and counsel should confirm the following before moving forward:

• The governing instrument grants a present power to distribute principal expressly and in the relevant fiduciary.
• The contemplated further trust preserves required beneficial interests and any material purpose constraints and does not expand impermissibly beyond the source authority.
• All interested parties receive accurate, complete disclosures; any beneficiary consents are informed and properly documented.
• Situs, governing law and trustee appointment mechanics are validly affected before any act of appointment.
• A contemporaneous fiduciary record articulates the purposes, benefits and risk analysis supporting the exercise.
• Downstream asset administration (including titling, custody and valuations) is aligned to avoid later tracing exposure.

Title 12 alternatives to decanting

Where decanting is unavailable, imprudent or unnecessarily risky, Delaware’s Title 12 provides flexible alternatives that often deliver similar outcomes with less litigation exposure.

• Nonjudicial settlement agreements (NJSA). Delaware permits interested persons to enter into binding nonjudicial settlement agreements on matters that could be properly approved by a court. Properly structured, an NJSA can resolve construction questions, administrative changes, trustee powers and certain modifications consistent with a trust’s material purpose without the burdens of contested litigation. The agreement must be within the scope permitted by statute and doctrine, and virtual representation tools can help bind remote or minor interests when requirements are satisfied.
• Modification by consent. Delaware recognizes mechanisms for modifying irrevocable trusts with the consent of all interested parties, in appropriate circumstances and within statutory bounds. Depending on the configuration of beneficiaries and any continuing material purposes, consent‑based modification may permit changes to dispositive provisions, administrative terms or trustee powers, often more directly than a decanting premised on distribution authority.
• Court‑supervised modification or reformation. When consents are incomplete or the changes sought implicate material purpose concerns, parties can seek equitable reformation or modification in the Court of Chancery. Delaware’s statutory and common law pathways allow correction of mistakes, clarification of ambiguities, and adjustments to effect settlor intent in light of unanticipated circumstances, with the benefit of judicial approval and reduced later challenge risk.
• Trust mergers, divisions and administrative updates. Where the objective is administrative efficiency or to align governance with modern practice, fiduciaries can consider statutory trust mergers, segregations, or divisions, trustee succession and directed‑trust features, and other administrative updates that do not alter material purposes. These tools can be paired with an NJSA to streamline implementation and secure durable buy‑in.

Selecting among these options is fact‑specific. Counsel should map the client’s goals against: the original instrument’s distribution and modification language; the presence of material purpose constraints; beneficiary alignment and representation capacity; tax implications; and the client’s risk tolerance for future challenge. In many cases, an NJSA or consent‑based modification will achieve the desired outcome more cleanly than a decanting and with fewer remedial uncertainties.

Action items

Fiduciaries and advisers considering structural trust changes should inventory the governing instrument’s powers and constraints, evaluate whether decanting authority truly exists and weigh Title 12 alternatives that offer clearer statutory footing. Where a prior decanting is suspected to be vulnerable, prompt assessment of remedial exposure, asset tracing and potential settlement architecture is critical to containing risk and restoring compliance with Delaware law.

For more information, please contact Beth B. Miller at bmiller@foxrothschild.com or another member of the firm’s Taxations & Wealth Planning Department.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients. Prior results do not guarantee a similar outcome.