May a trustee with discretionary authority to make principal distributions ever decant for the sole purpose of increasing his/her/its compensation?

Charles E. Rounds, Jr.
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The Uniform Trust Code requires that the trustee notify the qualified beneficiaries, usually the current beneficiaries and presumptive remaindermen, in advance of any change in the method or rate of the trustee’s compensation.28 The Uniform Trust Decanting Act, specifically §16, requires that if the “first trust instrument” (the instrument governing the terms of the to-be-decanted trust) specifies an authorized fiduciary’s compensation, the fiduciary may not exercise the decanting power to increase the fiduciary’s compensation above the specified compensation unless all qualified beneficiaries of the “second trust’ (the recipient trust) consent in a signed record to the increase. The accompanying official comment offers a somewhat circular rationale for why not all those with equitable property rights in the entrusted property need sign off: “Obtaining the consent of qualified beneficiaries, who would generally be immediately impacted by a change in compensation, should be sufficient.” What about the equitable property rights of the non-qualified beneficiaries? The practice of apportioning trustee fees between the income and principal accounts comes to mind. It does not seem self-evident that that equitable property rights may be subject to fiduciary subversion so long as the impact is not “immediate.” Decanting is taken up generally in §3.5.3.2(a) of Loring and Rounds: A Trustee’s Handbook (2016). The portion of the section devoted to a general discussion of decanting is reproduced in its entirety below. The Uniform Trust Code’s qualified beneficiary concept is explained and critiqued in §6.1.5.1 of the Handbook.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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