2021 Colorado Code
Title 15 - Probate, Trusts, and Fiduciaries
Article 16 - Trust Administration
Part 9 - Colorado Uniform Trust Decanting Act
§ 15-16-926. Later-Discovered Property

1. Except as otherwise provided in subsection (3) of this section, if exercise of the decanting power was intended to distribute all the principal of the first trust to one or more second trusts, later-discovered property belonging to the first trust and property paid to or acquired by the first trust after the exercise of the power is part of the trust estate of the second trust or trusts.
2. Except as otherwise provided in subsection (3) of this section, if exercise of the decanting power was intended to distribute less than all the principal of the first trust to one or more second trusts, later-discovered property belonging to the first trust or property paid to or acquired by the first trust after exercise of the power remains part of the trust estate of the first trust.
3. An authorized fiduciary may provide in an exercise of the decanting power or by the terms of a second trust for disposition of later-discovered property belonging to the first trust or property paid to or acquired by the first trust after exercise of the power.

History. Source: L. 2016: Entire part added,(SB 16-085), ch. 228, p. 889, § 1, effective August 10.

COMMENT

If the decanting power is exercised by modifying the terms of the first trust, the trustee could either treat the second trust created by such modification as a new trust, in which case the property of the first trust would need to be transferred to the second trust, or alternatively treat the second trust as a continuation of the first trust, in which case the property of the first trust would not need to be retitled. When the second trust is a continuation of the first trust, any property owned by the first trust is still owned by the trust after the decanting, even if the authorized fiduciary is not aware of such property at the time of the decanting.

When the decanting power is exercised by distributing property of the first trust to a separate second trust, regardless of whether the terms of such second trust are set forth in an entirely separate trust instrument or a modification of the first-trust instrument, the property of the first trust needs to be transferred to the second trust(s). Inevitably, there will be cases where the trustee fails to transfer all of the property to the second trust. The trustee can protect against this possibility by, in the exercise of the decanting power, making a global assignment of all trust property to the second trust. When the property of the first trust is being divided among more than one second trusts or not all of the property of the first trust is being decanted, it is more complicated, but still possible, to specify in the exercise of the decanting power how later-discovered property should be allocated.

Section 15-16-926(3) explicitly permits an authorized fiduciary to provide, in an exercise of the decanting power or by the terms of a second trust, for disposition of later- discovered property belonging to the first trust or property paid to or acquired by the first trust after exercise of the decanting power. For example, if an authorized fiduciary exercises the decanting power over a trust to create a special-needs trust for the settlor's child J and to create a separate trust for the settlor's other children, the exercise of the decanting power might state that the trust for J will be funded with marketable securities and cash with a value of $1,000,000 and that all other property, including later- discovered property, will be distributed to and owned by the trust for the other children. Assume the trust for J is then funded with $1,000,000 of marketable securities and all other property then known to the trustee is assigned to the trust for the other children. If subsequently other trust assets are discovered, it would be clear that they belong to the trust for the other children and not the trust for J.

The trustee in transferring title to the first trust's property pursuant to a decanting may also take the precaution of executing a global assignment of all property not otherwise expressly transferred to the appropriate second trusts.

Section 15-16-926(1) and (2) specify default rules when later-discovered property and property paid to or acquired by the first trust after the exercise of the decanting power is not expressly allocated to a particular trust by the exercise, by the second-trust instrument or by an assignment.

Subsection (1) provides that if the decanting intended to distribute all of the principal of the first trust to one or more second trusts, then the property is part of the second trust or trusts. When there is more than one second trusts, the exercise of the decanting power might specify their respective interests in the property of the first trust or if it does not, the second trusts may need to reach agreement about their respective ownership interests.

Subsection (2) provides that if the decanting was not intended to distribute all of the principal of the first trust to one or more second trusts, such property remains part of the first trust.