Petition for Decanting (Delaware)

PETITION FOR DECANTING (CONFIRMATION OF EXERCISE OF DECANTING POWER UNDER 12 DEL. C. § 3528)

COURT INFORMATION

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR [NEW CASTLE / KENT / SUSSEX] COUNTY

C.A. No.: [________________________________]

Vice Chancellor: [________________________________]

IN THE MATTER OF THE [NAME OF FIRST TRUST]: PETITION FOR CONFIRMATION OF EXERCISE OF DECANTING POWER UNDER 12 DEL. C. § 3528

PETITION

Petitioner, [________________________________], as Trustee of the [Name of First Trust], by and through undersigned counsel, respectfully states as follows:

I. PETITIONER

1. Petitioner is [________________________________], the [☐ sole trustee ☐ co-trustee] of the [Name of First Trust] (the "First Trust"), and has authority under the First Trust to invade the principal or income (or both) of the First Trust to make distributions to or for the benefit of one or more proper objects of the exercise of the power, within the meaning of 12 Del. C. § 3528(a). The First Trust is [☐ testamentary ☐ irrevocable inter vivos ☐ revocable by its terms, but its settlor presently lacks capacity to revoke it]; supporting facts: [________________________________].

2. Petitioner's status:
   ☐ Delaware-chartered bank or trust company under 5 Del. C. Chapter 7
   ☐ Delaware-licensed limited purpose trust company
   ☐ Individual Delaware-resident trustee
   ☐ Non-Delaware trustee serving where trust is administered in Delaware under § 3340
   ☐ Co-trustee with [________________________________]

3. Petitioner's contact information:
   Street: [________________________________]
   City: [________________] State: [____] Zip: [________]
   Telephone: [(___) ___-____] Email: [________________________________]

II. JURISDICTION AND VENUE

4. This Court has subject matter jurisdiction over this proceeding pursuant to 10 Del. C. § 341 (Court of Chancery's general equity jurisdiction over trusts), 10 Del. C. § 6504 (declaratory judgment), and 12 Del. C. § 3528 (decanting authority), and applies Court of Chancery Rules 100 et seq. governing trust petitions.

5. Venue is proper in [______________] County, Delaware because (check all that apply):
   ☐ The First Trust is principally administered in this County;
   ☐ The Trustee maintains a place of business in this County;
   ☐ The Settlor resides/resided in this County;
   ☐ Trust real property is situated in this County;
   ☐ Other: [________________________________].

6. The situs and governing law of the First Trust is Delaware [☐ by express designation in the trust instrument ☐ by transfer of situs to Delaware under 12 Del. C. § 3332 / § 3340].

III. THE FIRST TRUST

7. The First Trust is the [________________________________] (the "First Trust"), created by [________________________________] (the "Settlor") by trust instrument dated [__/__/____] (the "First Trust Instrument"). A true and correct copy of the First Trust Instrument, together with all amendments, is attached as Exhibit A.

8. The First Trust is irrevocable. The Settlor is [☐ living ☐ deceased, died [__/__/____]].

9. The First Trust is (check all that apply):
   ☐ Inter vivos trust
   ☐ Testamentary trust
   ☐ Delaware Qualified Disposition Trust under 12 Del. C. § 3570 et seq. — seasoning period began [__/__/____]
   ☐ Dynasty trust invoking 25 Del. C. § 503 (personal property may remain in trust without a fixed termination date; real property still held in trust is generally distributed after 110 years, subject to statutory exceptions)
   ☐ Grandfathered GST trust (irrevocable on or before September 25, 1985)
   ☐ Marital-deduction trust (QTIP / general POA marital) under IRC §§ 2056 or 2523
   ☐ § 2503(c) minor's trust
   ☐ Trust holding property subject to a presently exercisable power of withdrawal (Crummey trust)
   ☐ Other: [________________________________]

10. The First Trust holds assets with an approximate fair market value of $[__________] as of [__/__/____]. A summary inventory is attached as Exhibit B.

11. The beneficiaries of the First Trust (including proper objects of the exercise of the decanting power and remainder beneficiaries) are:

12. The discretionary distribution authority of the Petitioner-Trustee under the First Trust is (check one):

☐ Absolute/unlimited discretion — the First Trust authorizes invasion of income and/or principal without limitation by any ascertainable standard.

☐ Limited discretion / ascertainable standard — the First Trust authorizes invasion subject to an ascertainable standard (e.g., HEMS — health, education, maintenance, support). Pursuant to § 3528(a), the exercise of decanting must comply with this standard but may be exercised whether or not the Trustee could have distributed all trust assets outright.

13. The trust provision granting discretion is quoted verbatim:

"[Quote the exact language of the discretionary distribution clause from the First Trust Instrument.]"

14. The First Trust [☐ does ☐ does not] include a trust adviser or protector under 12 Del. C. §§ 3313, 3313A, 3570(8). If yes, identify the adviser/protector and attach written direction or consent as Exhibit G.

IV. THE SECOND TRUST

15. The Second Trust is the [________________________________] (the "Second Trust"). The proposed Second Trust instrument is attached as Exhibit C.

16. The Second Trust [☐ is a newly created trust ☐ is the First Trust as modified after appointment under § 3528 (as permitted by the 2017 amendment) ☐ is an existing trust to which the Petitioner-Trustee proposes to appoint the assets of the First Trust].

17. The situs and governing law of the Second Trust is Delaware. The Second Trust [☐ will ☐ will not] qualify as a Qualified Disposition Trust under 12 Del. C. § 3570 et seq.

18. The trustee(s) of the Second Trust will be:

19. The beneficiaries of the Second Trust are:

20. The Second Trust has only beneficiaries who are proper objects of the exercise of the power under the First Trust. ☐ Confirmed (§ 3528(a)(1)). The Second Trust [☐ does ☐ does not] provide that, at a time or upon an event specified in the governing instrument, the remaining trust assets shall thereafter be held for the benefit of the beneficiaries of the First Trust on substantially identical terms (permitted by § 3528(a)(1)).

V. STATUTORY AUTHORITY FOR DECANTING — 12 DEL. C. § 3528

21. Pursuant to 12 Del. C. § 3528(a), a trustee with the required distribution authority under a testamentary or irrevocable inter vivos trust may appoint eligible principal or income to a Second Trust, subject to the section's limits. The statute includes a trust revocable by its terms if its settlor presently lacks capacity to revoke it.

22. Petitioner-Trustee has the requisite authority as set forth in Paragraph 12 above and certifies element-by-element compliance with the four limitations of § 3528(a):

A. § 3528(a)(1) — Beneficiary limitation. The Second Trust has only beneficiaries who are proper objects of the exercise of the power, except that the Second Trust may provide for reversion of remaining assets to beneficiaries of the First Trust on substantially identical terms. ☐ Confirmed.

B. § 3528(a)(2) — § 2503(c) minor's trust protection. [☐ Not applicable (First Trust is not a § 2503(c) trust) ☐ If applicable, the Second Trust provides that the beneficiary's remainder interest vests and becomes distributable no later than the date upon which such interest would have vested under the First Trust].

C. § 3528(a)(3) — Marital-deduction protection. [☐ Not applicable (First Trust is not a marital-deduction trust) ☐ If applicable, the exercise does not reduce any income or unitrust interest of any beneficiary of the marital-deduction trust under IRC §§ 2056, 2523, or comparable state-law provisions].

D. § 3528(a)(4) — Crummey/withdrawal-power protection. [☐ Not applicable ☐ If applicable, the exercise does not apply to trust property subject to a presently exercisable power of withdrawal held by a trust beneficiary who is the only beneficiary to whom, or for the benefit of whom, the Trustee has authority to make distributions].

23. The exercise of decanting complies with any standard limiting Petitioner-Trustee's authority to make distributions from the First Trust, but is exercised pursuant to the second sentence of § 3528(a) (the exercise complies with any distribution standard but may be exercised whether or not the Trustee would have been permitted to make a current outright distribution of all trust assets under such standard).

24. (If a power of appointment is conferred on a Second Trust beneficiary) Pursuant to the closing clause of § 3528(a), the Second Trust grants a power of appointment to [________________________________], a proper object of the exercise of the power under the First Trust. The class of permissible appointees is [________________________________].

VI. COMPARISON OF FIRST TRUST AND SECOND TRUST PROVISIONS

25. The material differences between the First Trust and the Second Trust are summarized in the following table. A complete redlined comparison is attached as Exhibit D.

VII. DELAWARE QUALIFIED DISPOSITION TRUST INTEGRATION (12 DEL. C. § 3570 et seq.)

26. (Check if applicable) ☐ The First Trust is a Delaware Qualified Disposition Trust. The four-year creditor seasoning period under 12 Del. C. § 3572 began on [__/__/____] and [☐ has expired ☐ has not expired].

27. (Check if applicable) ☐ The Second Trust will be a Delaware Qualified Disposition Trust. The Second Trust instrument:
    ☐ Expressly invokes 12 Del. C. § 3570 et seq.;
    ☐ Contains a qualified-disposition spendthrift provision (§ 3570(11)(c));
    ☐ Designates a Qualified Trustee (Delaware-resident individual, Delaware-chartered bank or trust company) per § 3570(11)(b);
    ☐ Acknowledges that decanting may commence a new four-year seasoning period as to newly-transferred property.

28. The decanting [☐ will ☐ will not] commence a new four-year creditor seasoning period under § 3572 with respect to property newly transferred into the qualified-disposition structure.

VIII. GST INCLUSION-RATIO ANALYSIS (Treas. Reg. § 26.2654-1; § 26.2601-1(b)(4))

29. The GST tax status of the First Trust is:

☐ Grandfathered (irrevocable on or before September 25, 1985) — Treas. Reg. § 26.2601-1(b)(1).
☐ Non-grandfathered with GST exemption fully allocated (zero inclusion ratio).
☐ Non-grandfathered with partial GST exemption allocation (inclusion ratio = [____]).
☐ Non-grandfathered with no GST exemption allocated (inclusion ratio = 1.0).
☐ Not a GST-relevant trust.

30. The proposed decanting [☐ will ☐ will not] cause the First Trust to lose grandfathered status under Treas. Reg. § 26.2601-1(b)(4). Analysis is set forth in Exhibit F, including application of the applicable rules in Treas. Reg. § 26.2601-1(b)(4)(i)(A)–(D).

31. If the Second Trust constitutes a severance of the First Trust, the severance [☐ does ☐ does not] qualify as a "qualified severance" under Treas. Reg. § 26.2642-6, preserving the separate inclusion ratios of the resulting trusts.

32. No portion of the assets of the First Trust having a zero inclusion ratio will be commingled with assets having an inclusion ratio greater than zero in the Second Trust, except as a permissible qualified severance.

IX. NOTICE TO INTERESTED PARTIES

33. Petitioner-Trustee, consistent with the beneficiary's right to be informed under 12 Del. C. § 3303(c) and applicable common-law fiduciary duty (and notwithstanding that 12 Del. C. § 3528 imposes no mandatory statutory notice period), [☐ has provided ☐ will provide] written notice of the proposed exercise of the decanting power to each of the following persons, accompanied by a copy of the Instrument of Decanting (Exhibit B) and the proposed Second Trust instrument (Exhibit C):

34. The First Trust [☐ does ☐ does not] expand, restrict, or eliminate the beneficiary's right to be informed under 12 Del. C. § 3303(c). Relevant trust provisions are: [________________________________].

35. The decanting [☐ has been ☐ will be] effected by an Instrument of Decanting in writing, signed by the Trustee, in accordance with 12 Del. C. § 3528(b). Delaware does not statutorily require the instrument to be acknowledged before a notary public; the Trustee [☐ has additionally acknowledged ☐ will additionally acknowledge] the Instrument before a notary public as a matter of evidentiary best practice. A true and correct copy of the Instrument of Decanting is attached as Exhibit B.

36. Proofs of service / acknowledgments of notice are attached as Exhibit E.

X. FACTUAL BASIS FOR DECANTING

37. The First Trust was established by the Settlor for the following purposes: [________________________________].

38. Since the creation of the First Trust, the following circumstances have arisen warranting the exercise of the decanting power:

[________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________]

39. The exercise of the decanting power is consistent with the Settlor's intent and the fiduciary duties owed to the beneficiaries because: [____________].

XI. PRIOR PROCEEDINGS

40. There are no prior or pending court proceedings involving the First Trust except: ☐ None ☐ [____________].

XII. PRAYER FOR RELIEF

WHEREFORE, Petitioner respectfully prays that this Court enter an Order:

A. Finding that this Court has jurisdiction over the parties and the subject matter pursuant to 10 Del. C. § 341, 10 Del. C. § 6504, and 12 Del. C. § 3528, and that venue is proper in [______________] County;

B. Finding that the First Trust has its situs and governing law in Delaware;

C. Finding that Petitioner is a trustee with authority to invade the principal and/or income of the First Trust within the meaning of 12 Del. C. § 3528(a);

D. Finding that the proposed exercise of the decanting power complies with 12 Del. C. § 3528(a)(1)–(4) (beneficiary limitation, § 2503(c) minor's trust protection, marital-deduction protection, and Crummey/withdrawal-power protection) and with any ascertainable standard limiting the Trustee's distribution authority;

E. Finding that the Instrument of Decanting (Exhibit B) was duly executed by a written instrument signed by the Trustee as required by 12 Del. C. § 3528(b);

F. Finding that the proposed decanting does not cause the First Trust to lose grandfathered GST status (where applicable) or otherwise jeopardize the federal estate, gift, GST, charitable, or income tax benefits of the First Trust;

G. Finding (where applicable) that the Second Trust qualifies as a Delaware Qualified Disposition Trust under 12 Del. C. § 3570 et seq. and identifying the commencement date of any new four-year seasoning period under § 3572;

H. Approving and confirming the exercise of the decanting power by Petitioner-Trustee, appointing all (or such portion as specified) of the principal and/or income of the First Trust to the trustee(s) of the Second Trust, on the terms set forth in the proposed Second Trust instrument (Exhibit C);

I. Directing that the Second Trust be administered in accordance with its terms following the effective date of the decanting, and that the First Trust be terminated (if all property decanted) or continued (if partial decanting);

J. Granting the Petitioner-Trustee fiduciary protection for actions taken in good-faith reliance on this Order;

K. Awarding Petitioner's reasonable attorney's fees, costs, and expenses payable from the First Trust as permitted by 12 Del. C. § 3584 and applicable law;

L. Retaining jurisdiction to enforce or further interpret this Order; and

M. Granting such other and further relief as the Court deems just and equitable.

XIII. VERIFICATION

STATE OF DELAWARE )
) ss.:
COUNTY OF [____________] )

[________________________________], being first duly sworn, deposes and states: I am the Petitioner named in the foregoing Petition and am the Trustee of the First Trust. I have read the Petition and know its contents. The matters stated are true to my own knowledge, except those stated upon information and belief, which I believe to be true.

________________________________
[Trustee-Petitioner Signature]

Sworn to and subscribed before me this [____] day of [____________], 20[____].

________________________________
Notary Public, State of Delaware

XIV. SIGNATURE OF ATTORNEY

Respectfully submitted,

Dated: [__/__/____]

________________________________
[Attorney Name]
[Firm Name]
[Address]
[Telephone] | [Email]
Delaware Bar ID No. [____________]
Attorney for Petitioner-Trustee

XV. PROOF OF SERVICE

I, [________________________________], certify that on [__/__/____] I served the foregoing Petition for Decanting, together with all Exhibits, upon the persons listed in Section IX above by the methods and on the dates indicated, in accordance with Court of Chancery Rule 5 and applicable law.

________________________________
[Signature] Date: [__/__/____]

EXHIBITS

• Exhibit A: First Trust Instrument dated [__/__/____] and all amendments
• Exhibit B: Instrument of Decanting (written instrument signed by the Trustee) under 12 Del. C. § 3528(b)
• Exhibit C: Proposed Second Trust Instrument
• Exhibit D: Redlined comparison of First Trust and Second Trust provisions
• Exhibit E: Notices given and proofs of service / acknowledgments
• Exhibit F: Tax analysis — GST inclusion ratio (Treas. Reg. § 26.2654-1; § 26.2601-1(b)(4)); marital, charitable, and income tax classifications
• Exhibit G: Trust adviser / protector direction or consent (if applicable, 12 Del. C. §§ 3313, 3313A)
• Exhibit H: Trustee certification of authority and discretion type
• Exhibit I: Delaware Qualified Disposition Trust (DAPT) seasoning analysis under § 3572, if applicable
• Exhibit J: Inventory of First Trust assets as of [__/__/____]

DELAWARE-SPECIFIC PRACTICE NOTES

Statutory threshold. Section 3528(a) requires the Trustee's distribution authority under a testamentary or irrevocable inter vivos trust, including a trust revocable by its terms whose settlor presently lacks capacity to revoke. Confirm the First Trust's terms, applicable law, beneficiaries, and distribution standard before seeking confirmation.

No statutory notice period. Unlike New York (EPTL § 10-6.6(j) — 30 days), Florida (F.S. § 736.04117 — 60 days), or UTDA states (60 days), Delaware imposes NO fixed statutory notice period for decanting. The beneficiary's right to be informed under 12 Del. C. § 3303(c) — which the governing instrument may expand, restrict, or eliminate — and common-law fiduciary duty supply the notice obligation. Court of Chancery practice generally favors a written notice of at least 60 days with a copy of the signed Instrument of Decanting and proposed Second Trust instrument.

No court approval required. § 3528 authorizes decanting unilaterally by the trustee through a signed Instrument of Decanting (§ 3528(b)). Court of Chancery confirmation under 10 Del. C. § 341 is available and is sought where: (a) beneficiaries object, (b) tax-sensitive trusts (GST grandfathered, marital, charitable) are involved, (c) the decanting materially changes beneficial interests, or (d) the trustee desires the fiduciary protection of a court order.

The four § 3528(a) limits. Decanting cannot: (1) add beneficiaries who are not proper objects of the power (though reversion to first-trust beneficiaries on substantially identical terms is permitted); (2) defer the vesting/distribution date of a § 2503(c) minor's trust; (3) reduce any income or unitrust interest of a marital-deduction trust; or (4) apply to property subject to a presently exercisable power of withdrawal of the sole beneficiary.

Power of appointment grant. § 3528(a) expressly permits the Second Trust to grant a power of appointment (including a broad power to appoint to the powerholder, the powerholder's creditors, the powerholder's estate, or any other person) to a proper object of the exercise of the power. This is a meaningful Delaware feature.

Qualified Disposition Trust integration. Delaware's DAPT statute (12 Del. C. § 3570 et seq.) creates a four-year creditor seasoning period (§ 3572). Decanting from or into a Qualified Disposition Trust requires preserving § 3570(11) qualified-disposition requirements (Delaware Qualified Trustee, Delaware governing law, spendthrift clause) and analyzing seasoning-period tacking.

Dynasty trusts. Under 25 Del. C. § 503(a), personal property may remain in trust without a fixed termination date. Section 503(b) generally requires real property still held in trust to be distributed after 110 years, measured from the later of acquisition or addition to the trust or the trust becoming irrevocable, subject to listed exceptions. Review tax effects before any decanting that changes a trust's duration.

Written-instrument requirement. § 3528(b) requires the decanting to be effected by an instrument in writing, signed by the trustee. Delaware does NOT statutorily require the instrument to be acknowledged before a notary public; acknowledgment is customary best practice for evidentiary and recording purposes. Separately, § 3528(c) provides that the decanting is treated as the exercise of a power of appointment and is subject to the Title 25, Chapter 5 rule-against-perpetuities provisions — so the second trust may have a term longer than the first. Attach the signed Instrument of Decanting as an exhibit and recite its execution in the petition.

Court of Chancery procedure. Court of Chancery Rules 100–199 govern trust petitions. Service is generally under Rule 5; representation of unborn/unascertained beneficiaries is governed by the doctrine of virtual representation (12 Del. C. §§ 3547, 3582).

SOURCES AND REFERENCES

• 12 Del. C. § 3528 (Trustee's authority to invade principal or income in trust)
• 12 Del. C. §§ 3303, 3313, 3313A, 3325, 3332, 3338, 3340, 3536, 3547, 3570 et seq., 3582, 3584
• 10 Del. C. § 341 (Court of Chancery jurisdiction); 10 Del. C. § 6504 (declaratory judgment)
• 25 Del. C. § 503 (Delaware modified rule against perpetuities)
• Delaware Court of Chancery Rules 100 et seq. (trust petition procedure)
• 26 U.S.C. § 2642 (GST inclusion ratio)
• Treas. Reg. § 26.2601-1(b)(4) (grandfathered GST trust modifications)
• Treas. Reg. § 26.2642-6 (qualified severance); Treas. Reg. § 26.2654-1 (certain trusts treated as separate trusts)
• Morris, Nichols, Arsht & Tunnell, Delaware Decantings: A Practical Guide to the Pitfalls and Perils (Delaware Banker, Spring 2018)
• Levin & Flubacher, Put Decanting to Work to Give Breath to Trust Purpose, Estate Planning (2011)
• Uniform Trust Decanting Act (2015) — for comparison; not adopted in Delaware