Whitmore Trust: Decanting Against an Objecting Remainder Beneficiary
The Whitmore Family Trust is an irrevocable trust created in 2008 under Delaware law. Its trustee is a Delaware trust company. The settlor died in 2016. The trust gives the trustee discretion to distribute principal to the settlor's daughter, Alice, for her 'health, education, maintenance, and support.' Alice receives all income for life; on her death, the remainder goes to her two children, now ages 12 and 9. The trust does not give the trustee power to add beneficiaries. The trustee proposes to decant the entire trust into a new Delaware trust that would (1) permit principal distributions to Alice for her 'best interests,' (2) extend the trust term for the grandchildren's lifetimes plus 21 years, and (3) add a spendthrift clause. Alice consents in writing. The guardian of the grandchildren objects, arguing that the decanting exceeds the trustee's authority and reduces the grandchildren's remainder. The trustee asks whether it may proceed without court approval.
1. May the trustee decant under 12 Del. C. § 3528? Analyze the effect of the ascertainable-standard limitation.
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Section 3528 permits a trustee who has discretion to distribute principal to exercise that discretion by decanting into a new trust. But the trustee's discretion here is limited by an ascertainable standard: health, education, maintenance, and support. Under § 3528(b), when the trustee's discretion is limited by an ascertainable standard, the new trust must contain a substantially similar standard. Broadening the standard to 'best interests' would exceed that limit and would reduce the grandchildren's remainder interest.
Extending the term and adding a spendthrift clause may be permissible in some circumstances, but not if the decanting changes beneficial interests beyond the statute's authorization. The trustee may proceed without court approval only if the statute's notice requirements are satisfied; the guardian's objection means the trustee should seek court instruction or limit the decanting to a substantially similar standard.
2. What duties does the trustee owe the objecting guardian and the minor grandchildren, and what notice or accounting is required?
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The trustee owes duties of loyalty, impartiality, and prudent administration. It cannot prefer Alice's interest over the grandchildren's remainder. It must disclose material information about the trust and provide an accounting on request. Delaware law requires notice to qualified beneficiaries in connection with a decanting, and the guardian is entitled to raise objections on the children's behalf. The trustee should document its reasons, avoid self-dealing, and not use decanting to shield assets from the remainder beneficiaries or to benefit the trustee. If the trustee proceeds over a colorable objection, it risks surcharge and removal.
3. If the trustee also wanted to move the trust's situs to another state, what factors and fiduciary concerns apply?
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A change of situs is not automatically authorized by the trust instrument, and the trustee must act consistently with the trust's terms and its fiduciary duties. Relevant factors include the beneficiaries' residence and convenience, state income and transfer taxes, administrative cost, creditor-protection rules, and whether the new state's perpetuities law affects the extended term. The trustee cannot change situs merely to escape Delaware court supervision or to gain a personal advantage. If the move would materially affect beneficial interests or the trustee's powers, the trustee should seek court approval or beneficiary consent after full disclosure.