Federal Judge Blocks Biden-Era Nursing Home Staffing Rule – Implications for Care Quality and Families

On April 8, 2025, a federal judge in Texas struck down a Biden administration rule aimed at establishing minimum staffing requirements for nursing homes that receive Medicare and Medicaid funding. This ruling, issued by U.S. District Judge Matthew Kacsmaryk, has significant implications for the quality of care in nursing homes, the families who depend on these facilities, and the broader debate over healthcare regulations in the U.S. I'll explores the details of the rule, the lawsuit challenging it, the court’s rationale for blocking it, and the potential effects on nursing home residents and their families.

The Blocked Rule: Minimum Staffing Standards for Nursing Homes

The rule, announced by the U.S. Department of Health and Human Services (HHS) in April 2024, sought to address chronic staffing shortages in nursing homes by imposing the first-ever federal minimum staffing standards for long-term care facilities. Issued by the Centers for Medicare & Medicaid Services (CMS), the regulation required nursing homes to:

• Employ a registered professional nurse (RN) 24 hours per day, seven days a week, a significant increase from the existing federal requirement of eight hours per day.

• Maintain total nurse staffing, including nurse aides, at a minimum of 3.5 hours per resident per day (HPRD), ensuring a baseline level of care for residents.

The Biden administration framed the rule as a critical step to improve care quality for the 1.2 million residents in Medicare- and Medicaid-certified facilities, citing systemic issues exposed during the COVID-19 pandemic, such as understaffing leading to neglect and poor health outcomes. CMS argued that higher staffing levels would enhance resident safety, reduce infections, and improve overall care, aligning with the Federal Nursing Home Reform Act’s (FNHRA) goal of protecting residents’ “health, safety, and dignity”.

The Lawsuit: Basis for Challenging the Rule

The lawsuit by the American Health Care Association (AHCA), a major nursing home industry group, and Texas Attorney General Ken Paxton, among others, in May 2024 argued that the rule was unlawful on several grounds:

Exceeding Statutory Authority: The plaintiffs contended that HHS and CMS lacked the authority to impose such stringent staffing mandates. Federal law, specifically the Social Security Act, explicitly requires nursing homes to have an RN on-site for eight consecutive hours per day and to provide “sufficient” staff to meet residents’ nursing needs. The plaintiffs argued that the new rule’s 24/7 RN requirement and 3.5 HPRD standard went beyond what Congress had authorized, effectively rewriting the law.

Financial and Operational Burdens: The nursing home industry highlighted the practical challenges of compliance, citing workforce shortages and financial strain. The AHCA claimed that the mandate would force many facilities to close, displacing vulnerable seniors, as the industry already struggles to hire and retain staff amid a national shortage of healthcare workers. At least one operator, LaVie Care Centers, blamed the staffing rule for its bankruptcy filing.

Arbitrary and Capricious Rulemaking: The plaintiffs argued that CMS failed to adequately justify the rule’s immediate implementation and did not tailor the staffing requirements to the diverse needs of nursing home populations, as required by federal law. They claimed the 3.5 HPRD formula was a “one-size-fits-all” approach that ignored facility-specific factors.

The Court’s Ruling: Legal Basis for Blocking the Rule

Judge Matthew Kacsmaryk, granted summary judgment to the plaintiffs on April 7, 2025, vacating key provisions of the CMS rule. His decision rested on the following legal bases:

Lack of Congressional Authority: Kacsmaryk ruled that HHS and CMS exceeded their statutory authority under the Social Security Act. He noted that Congress had explicitly set the RN staffing requirement at eight hours per day, and the 24/7 RN mandate went beyond this limit. Similarly, the 3.5 HPRD standard was deemed inconsistent with the law’s requirement for “sufficient” staffing tailored to residents’ needs, as it imposed a rigid national formula.

Failure to Tailor Requirements: The court found that CMS did not meet statutory requirements to customize staffing levels based on the specific needs of each facility’s resident population. Kacsmaryk criticized the 3.5 HPRD formula as an unlawful “one-size-fits-all” approach, arguing that it did not account for variations in resident acuity or facility resources.

Procedural Deficiencies: The judge held that CMS failed to adequately explain the need for immediate implementation of the rule, a requirement under the Administrative Procedure Act. This procedural lapse further supported the decision to block the mandate.

The ruling was celebrated by the AHCA and industry groups as a victory for nursing homes, with AHCA President Clif Porter stating that the “unrealistic staffing mandate threatened to close nursing homes and displace vulnerable seniors.” Critics, including elder abuse attorney Ed Dudensing, argued that the decision “undermines the very safeguards designed to protect our elders’ dignity and well-being.”

Impact on Quality of Care: RN Staffing and Health Outcomes

Vacating the staffing rule raises significant concerns about the quality of care in nursing homes, particularly given the establishment view of well-documented correlation between RN staffing levels and resident health outcomes.  In a later article I will address critically recent challenges to this establishment view.  Regardless,  studies have consistently shown that higher RN and LPN staffing is associated with generally better physical and psychological outcomes for residents, while understaffing contributes to neglect, infections, and increased mortality.

Physical Health Outcomes: 

• A 2021 study published in Health Affairs found that nursing homes with higher RN staffing levels (at least 0.75 hours per resident per day) had significantly lower rates of hospitalizations, pressure ulcers, and infections compared to facilities with lower RN staffing. The study estimated that increasing RN staffing to this level could prevent 136,000 hospitalizations annually.

• During the COVID-19 pandemic, a 2022 CMS report highlighted that nursing homes with RN staffing below 0.4 HPRD had a 30% higher mortality rate from the virus, as understaffed facilities struggled with infection control and timely care. See, CMS, “Nursing Home Staffing and COVID-19 Outcomes” (2022).

• The blocked rule’s requirement of 3.5 HPRD, including RN presence 24/7, aimed to address these issues by ensuring consistent oversight and care. Without this mandate, facilities may continue to operate with insufficient RN staffing, potentially leading to increased physical health risks for residents, such as falls, medication errors, and untreated infections.

Psychological Health Outcomes:

• A 2019 study in The Gerontologist found that higher RN staffing was associated with lower rates of depression and anxiety among nursing home residents. RNs, with their advanced training, are better equipped to recognize and address psychological distress, provide emotional support, and coordinate mental health interventions.

• Understaffed facilities often rely on chemical restraints (e.g., psychotropic medications) to manage resident behavior, a practice that led to litigation in the Talevski case, where the Supreme Court affirmed residents’ rights under the FNHRA to be free from unnecessary restraints. The blocked staffing rule could have reduced such practices by ensuring RNs were available to implement non-pharmacological interventions, improving residents’ psychological well-being.

Impact on Families of Nursing Home Residents

Families who depend on nursing homes to keep their loved ones safe and well face significant challenges as a result of this ruling. To family members, the decision removes a federal safeguard that could have ensured consistent care, leaving families with heightened uncertainty and potential risks:

Increased Risk of Neglect and Abuse: 

• Understaffing is a leading cause of neglect and abuse in nursing homes, as overworked staff may lack the time to provide adequate care. The NHRA requires personalized care plans and regular reviews, but without sufficient RNs, these plans may not be implemented effectively. Families may worry about their loved ones experiencing preventable issues like pressure ulcers, dehydration, or untreated infections due to inadequate staffing.

• For example, in the Talevski case, a family discovered that their father was chemically restrained with psychotropic medications due to understaffing at a county-owned facility, leading to his deterioration. Families will likely worry that such incidents may become more common without mandated staffing improvements.

Emotional and Financial Strain:

• Families often choose nursing homes expecting professional care that they cannot provide themselves, particularly for loved ones with complex needs like dementia. The ruling may force families to spend more time monitoring their loved ones’ care or hiring private caregivers to fill gaps, increasing emotional and financial burdens.

• If facilities close due to financial pressures, as the AHCA warned, families may face the trauma of relocating their loved ones, potentially to facilities farther away or with even lower staffing levels.

Aging in Place Planning

One positive effect of the court's decision, and the controversy surrounding it, is that more potential residents and families of potential residents will take seriously the need to age in place, and implement comprehensive aging in place planning. If you would like to know more, subscribe to this blog.  You will be receive periodic notifications of online aging in place planning workshops. If you can't or don't want to wait, there is a recorded, somewhat dated, workshop available here: https://bit.ly/Aging-in-Place-Workshop.  You can watch this presentation in the comfort of your home, and share it with your successor trustees and health care agents. 

Aging in Place Planning is a comprehensive estate, financial, and health care plan orienting your decision-making and resources to make aging in place more attainable, likely, and enforceable by your trusted advisors and fiduciaries, all to the goal of avoiding non-hospital institutional care entirely.  It incorporates reducing the risks of guardianship, and protecting assets from a court-appointed guardian.  

Aging in Place Planning can be incorporated into any existing estate plan.  It can be can be used in conjunction with irrevocable trust planning to shield assets from nursing home spend down, or as an alternative to such planning if it is deemed unnecessary or unacceptable.  

Advocacy Challenges

The NHRA provides for ombudsmen to investigate and address nursing home issues, but without federal staffing mandates, families may need to rely more heavily on these advocates to ensure care quality. Ombudsmen, too, are often overstretched, and their ability to enforce improvements may be compromised by increased demand resulting from the consequences of inadequate staffing.  Of course, like any funded resource, the ombudsmen program is limited without robust federal backing.

Broader Implications and Critical Analysis

The ruling reflects a broader tension between regulatory oversight and industry autonomy in healthcare. While the AHCA and nursing homes argue that the mandate was unworkable amid workforce shortages, critics assert that it was a necessary step to protect vulnerable residents. The decision also highlights the political divide on healthcare policy: Congressional Republicans and the Trump administration, including CMS Administrator Mehmet Oz, have signaled opposition to the rule, while Democrats sought to preserve it.

The establishment narrative—both from CMS and the industry—has obvious gaps. CMS’s rule, while well-intentioned, did not adequately address the root causes of staffing shortages, such as low wages, poor working conditions, vaccine mandates, and a lack of training programs, which continue to drive nurses away from the industry. Mandatory staffing may, actually miss the point entirely, since it is the nature of the resident population that dictates needs; some populations require less from an RN, and more from either LPNs or aids. Finally, staffing is not likely a panacea for the inherent risks of institutional care, many of which lead to rehospitalizations, the real target of federal effort. 

On the other hand, the AHCA’s claim that the mandate would lead to widespread closures may be overstated, as some facilities might have adapted by leveraging technologies like telehealth, and future demand may slow as a result of greater reliance on hospital-at-home, the former as specifically suggested by Oz.

Regardless, from a resident and family perspective, the ruling is a setback. The public will likely perceive that without federal enforcement, care quality may remain inconsistent, particularly in underfunded facilities, leaving families to bear the burden of advocacy and oversight.

A focus on either providing more alternatives to institutional care or encouraging and financing aging in place where possible might provide greater and more satisfying solutions. Reconsideration and reorientation of long-term care in the U.S. is long overdue.

Conclusion

The federal judge’s decision to block the Biden-era nursing home staffing rule on April 7, 2025, removes a critical safeguard intended to improve care quality for nursing home residents. The rule aimed to address systemic understaffing by mandating 24/7 RN coverage and a minimum of 3.5 HPRD, but the court ruled that CMS exceeded its authority, citing inconsistencies with congressional legislation and procedural deficiencies. The ruling is likely to perpetuate understaffing, increasing risks of neglect, infections, and psychological distress for residents, as evidenced by studies showing the benefits of higher RN staffing.

For families, the decision heightens concerns about safety and well-being, potentially requiring greater involvement and resources to ensure adequate care. While the nursing home industry celebrates the ruling, the long-term impact on vulnerable residents underscores the need for alternative solutions, such as state-level mandates or incentives to address workforce shortages, to uphold the FNHRA’s promise of dignity and care for nursing home residents.

Trust Decanting

Trust decanting is a legal process that allows a trustee to transfer assets from one, usually, irrevocable trust (the original trust) into a new trust with updated or more favorable terms, without requiring court approval or the consent of the beneficiaries. Essentially, it "pours" the assets from the old trust into a new one, much like decanting spirits from one container to another. This tool is often used in estate planning to adapt to changing circumstances, laws, or family needs while preserving the trust's original intent and purpose.

An example of a case where decanting might have been used if permitted by state law is found in my recent article, Irrevocable Medicaid Planning Trust Risks: State Refuses to Permit Trust Termination. In that case a Pennsylvania couple created an irrevocable trust for the primary purpose of protecting assets from nursing home spend down, but the circumstances changed: the trust was no longer effective and the selected trustee was no longer trusted. Pennsylvania doe not have a decanting statute, and the trust probably did not permit trust decanting (or if it did, the appointed trustee would not exercise the authority). The couple, therefore, was forced to ask a court to rescue their plan by terminating it. The courts in that case declined, leaving the irrevocable as written- vulnerable to nursing home spend down and an untrusted trustee.

When Trust Decanting Can Be Used

Trust decanting is typically available when:

• State Law Allows It: Decanting is governed by state-specific statutes, with over 30 U.S. states (as of 2025) having enacted decanting laws (e.g., Delaware, Nevada, New York, Ohio and Missouri). The trustee must have authority under the trust document or state law to distribute principal or income, which serves as the basis for decanting.  Decanting may still be permitted In states without statutes, under common law, as seen in Massachusetts, Morse v. Kraft, 466 Mass. 92 (2013) or the foundational case from Florida, Phipps v. Palm Beach Trust Co., 196 So. 299, 142 Fla. 782 (1940). However, relying on common law is less predictable and often not advisable when compared to statutory authority.  

• Trustee Has Power/Discretion: The original trust must grant the trustee sufficient discretionary power over distributions (e.g., the ability to distribute assets "for the benefit of" beneficiaries). The extent of this discretion often determines how much flexibility the trustee has in crafting the new trust.

• Need for Change: Common triggers include updating outdated trust terms, changing beneficiaries (e.g., removing a problematic one), adjusting tax strategies, relocating the trust to a more favorable jurisdiction, or fixing drafting errors.

When Trust Decanting Can’t Be Used

Decanting is not an option in the following cases:

• No State Law Support: If the trust is governed by a state without a decanting statute or common law permitting decanting and/or the trust document doesn’t explicitly allow it, decanting may not be permitted or advisable.

• Limited Trustee Authority: If the trust restricts the trustee’s discretion (e.g., mandatory distributions only), decanting may not be feasible.

• Beneficiary Rights Violated: Decanting cannot materially harm the vested rights of beneficiaries unless state law or the trust permits it. For example, eliminating a beneficiary’s fixed income stream might be prohibited.

• Court Oversight Required: Some trusts or jurisdictions may require judicial approval, negating the streamlined nature of decanting.

Costs

• Legal and Administrative Fees: Drafting a new trust and executing the decanting process typically involves attorneys and possibly accountants, costing anywhere from a few thousand to tens of thousands of dollars, depending on complexity.
• Tax Filings: Transferring assets might require updated tax filings or valuations, adding to the expense.
• Time: While faster than court modifications, decanting still requires planning and documentation, which can take weeks or months.

Benefits

• Flexibility: Decanting allows trusts to adapt to new tax laws, family dynamics, or financial goals without starting from scratch.

• Avoiding Court: It bypasses the costly and public process of judicial trust modification.

• Tax Optimization: Trustees can move assets to trusts in states with no income tax or adjust terms to minimize estate or generation-skipping transfer taxes.

• Privacy: Unlike court proceedings, decanting is a private process handled by the trustee and advisors.

• Fixing Errors: It can correct ambiguities or outdated provisions in the original trust.

Decanting Risks

The narrative around trust decanting often emphasizes its utility in modernizing, updating, or otherwise "fixing" irrevocable trusts, but there are gaps in the establishment view, and risks often downplayed or undisclosed.

• Legal Uncertainty: The Uniform Trust Decanting Act (UTDA), drafted in 2015, provides a model for states to adopt decanting laws with tax safeguards and trustee protections. States like Alabama, California, Colorado, and New Mexico have adopted versions of the UTDA, though some, like Florida, have statutes inspired by the UTDA but not officially recognized as such by the Uniform Law Commission. As a result, decanting statutes vary widely. For example, South Dakota and Nevada are considered top destinations due to their flexibility, such as allowing decanting without mandatory beneficiary notice. In contrast, states like California have stricter notice requirements, mandating 60 days’ notice to beneficiaries and other interested parties. The variety oof approaches leads to uncertainty as courts deal with a wide array of statutes and laws governing decanting.

• Tax Consequences: Improper decanting could trigger unintended gift, estate, or income tax liabilities if not carefully structured (e.g., shifting assets might be seen as a taxable event).  The IRS has not issued definitive guidance on the tax consequences of decanting, leaving practitioners to rely on private letter rulings and general trust law principles]. This uncertainty could lead to unintended tax consequences, such as estate tax inclusion under IRC §2036 or §2038 if the trustmaker is deemed to have control.

• Beneficiary Disputes: Even if legally permissible, beneficiaries might challenge the decanting in court if they feel cheated (e.g., reduced benefits), leading to litigation costs. Legal uncertainty weighs heavily in such cases.  For example, some states, like New Hampshire, "allow" decanting without beneficiary notice, raising ethical questions about transparency and fiduciary duty. Critics might argue this prioritizes trustee flexibility over beneficiary protections, and courts may establish equitable or legal remedies or boundaries , especially in extreme cases. 

• Loss of Intent: Overzealous changes might stray too far from the grantor’s original purpose, risking legal pushback or ethical concerns.

• Jurisdictional Limits: If the new trust’s terms or location exceed what state law allows, the decanting could be invalidated.

• Complexity: Mistakes in execution (e.g., failing to notify beneficiaries where required) could unravel the process.

Comparison and Contrast- Ohio, Missouri, New York, Delaware, and Nevada

To provide more explicit appreciation of the complexities of what may seem like a simple procedure, I will compare and contrast the trust decanting statutes in Ohio, Missouri, New York, Delaware, and Nevada, focusing on key aspects such as statutory authority, trustee authority, beneficiary notice requirements, tax implications, and unique features or challenges of the law. What follows is for illustrative purposes, and should not be seen as legal advice, or preference of one state over the other.  I selected Ohio and Missouri because I regular practice in these states.  I selected New York, Delaware, and Nevada, because these states are most commonly discussed as exemplars of consumer oriented trust decanting statutes.  I have not considered a state without statutory authority, i.e., operating under the common law.

1. Overview of Decanting Statutes

1. New York:
   • Statutory Authority: New York was the first state to enact a decanting statute in 1992 under §10-6.6 of the New York Estates, Powers and Trusts Law (EPTL). The statute has been amended multiple times, with significant updates in 2011 and 2019 to expand trustee powers and address tax concerns.
   • Purpose: The statute allows trustees to modify trusts by distributing assets to a new trust with different terms, often to update provisions or change beneficiaries.
2. Delaware:
   • Statutory Authority: Delaware’s decanting statute is found at 12 Del. C. § 3528, enacted in 2003 and updated over the years to enhance flexibility.
   • Purpose: Known for its trust-friendly environment, Delaware’s statute allows broad trustee discretion to decant, aligning with the state’s goal of attracting trust business.
3. Nevada:
   • Statutory Authority: Nevada’s decanting statute is codified at NRS § 163.556, enacted in 2011 and recognized as one of the most flexible in the U.S.
   • Purpose: Designed to maximize trustee flexibility with minimal procedural hurdles, the statute makes Nevada a top destination for trust administration.
4. Ohio:
   • Statutory Authority: Ohio’s decanting statute is part of the Ohio Trust Code (ORC § 5808.18), enacted in 2007 and amended to align with modern trust practices.
   • Purpose: The statute provides a mechanism for trustees to modify trusts while balancing flexibility with fiduciary duties.
5. Missouri:
   • Statutory Authority: Missouri’s decanting statute is found at Mo. Rev. Stat. § 456.4-419, enacted in 2011 as part of updates to the Missouri Uniform Trust Code.
   • Purpose: Missouri allows trustees to decant to improve trust administration, with specific procedural requirements to protect beneficiaries.

2. Trustee Authority to Decant

• New York:
  • Trustees must have "absolute discretion" to distribute principal to decant under EPTL § 10-6.6(b)(1). If the trustee has limited discretion (e.g., an ascertainable standard like health, education, maintenance, and support—HEMS), decanting is more restricted, and the new trust must retain the same standard.
  • The 2019 amendments expanded the statute to allow decanting even for trusts with limited discretion, but the new trust must preserve the original standard unless all beneficiaries consent .
• Delaware:
  • Delaware allows decanting if the trustee has the authority to distribute principal, regardless of whether the discretion is absolute or limited (e.g., HEMS). The statute is notably flexible, permitting the trustee to decant into a trust with different terms, even if the original trust has an ascertainable standard.
  • The new trust can have different beneficiaries, but the trustee must act in good faith and in accordance with fiduciary duties.
• Nevada:
  • Nevada’s statute is one of the most permissive, allowing trustees to decant if they have the authority to distribute principal, whether absolute or limited (e.g., HEMS). The trustee can decant into a trust with discretionary distributions, even if the original trust had an ascertainable standard, without needing beneficiary consent.
  • The statute explicitly allows the new trust to have different terms, including changing beneficiaries, making it highly flexible, but less reliable to a specific outcome.
• Ohio:
  • Ohio requires the trustee to have the authority to distribute principal, but the statute distinguishes between absolute discretion and limited discretion. If the trustee has absolute discretion, they can decant into a trust with different terms. If discretion is limited (e.g., HEMS), the new trust must retain the same standard unless modified with beneficiary consent or court approval.
  • The trustee must act in the best interests of the beneficiaries and in accordance with the original trust’s purpose.
• Missouri:
  • Missouri allows decanting if the trustee has the authority to distribute principal, but the statute is more restrictive than Nevada or Delaware. If the trustee’s discretion is limited (e.g., HEMS), the new trust must retain the same standard, similar to New York and Ohio.
  • The trustee must act in good faith, and the new trust must be for the benefit of the same beneficiaries unless otherwise permitted by the statute.
• Comparison:

• Nevada and Delaware offer the most flexibility, allowing trustees to decant even with limited discretion and to significantly alter trust terms, including beneficiary provisions.
• New York, Ohio, and Missouri are more cautious, requiring the new trust to retain the original standard (e.g., HEMS) if the trustee’s discretion is limited, unless beneficiaries consent or a court approves.

• Contrast:

• Nevada stands out for allowing the most drastic changes to trust terms without mandatory beneficiary involvement, while New York and Missouri impose stricter limits to protect the original trust’s intent.
• Delaware balances flexibility with fiduciary oversight, allowing changes to beneficiaries but requiring the trustee to act in good faith, while Ohio requires the
  trustee to act in the best interests of the beneficiaries and in accordance with the original trust’s purpose.

3. Beneficiary Notice and Consent Requirements

• New York:
  • Prior to the 2019 amendments, New York required notice to beneficiaries with a vested interest, but the updated statute allows decanting without notice in some cases, particularly if the trustee has absolute discretion.
  • If the trustee’s discretion is limited, notice to beneficiaries may still be required, and their consent might be needed to change certain terms (e.g., removing a mandatory income interest).
• Delaware:
• Delaware does not require notice to beneficiaries for decanting, giving trustees significant autonomy.
• However, the trustee must act in good faith, and beneficiaries can challenge the decanting if it violates fiduciary duties.
• Nevada:
• Nevada also does not require notice to beneficiaries, making it one of the most trustee-friendly states for decanting.
• The lack of notice requirements enhances privacy and flexibility but may raise concerns about beneficiary protections.
• Ohio:
• Ohio requires the trustee to provide notice to certain beneficiaries (e.g., current beneficiaries and those who would receive notice under the Ohio Trust Code) at least 60 days before decanting, unless waived by the beneficiaries.
• The notice requirement ensures transparency but can delay the process and potentially lead to objections.
• Missouri:
  • Missouri requires 60 days’ notice to all qualified beneficiaries before decanting, similar to Ohio.
  • The notice must include a copy of the new trust instrument, ensuring beneficiaries are informed of the changes, though their consent is not required unless the decanting alters a mandatory distribution.
• Comparison:

• Ohio and Missouri both mandate 60-day notice to beneficiaries, emphasizing transparency and beneficiary protection.
• Delaware and Nevada have no notice requirement, prioritizing trustee flexibility and privacy.

• Contrast:

• New York’s notice requirements depend on the trustee’s discretion level and the specific decanting action, making it more situational than the consistent notice mandates in Ohio and Missouri or the complete lack thereof in Delaware and Nevada.
• The absence of notice in Delaware and Nevada could lead to beneficiary disputes if they feel their interests are harmed, whereas Ohio and Missouri’s notice requirements provide a safeguard against such issues.

4. Tax Implications and Protections

• New York:
  • New York’s statute includes tax safeguards, such as ensuring that decanting does not trigger estate tax inclusion under IRC §2036 or §2038 by avoiding the trustmaker’s control over the new trust.
  • The 2019 amendments clarified that decanting can be used to preserve tax benefits, such as generation-skipping transfer (GST) tax exemptions, by ensuring the new trust retains the same tax status as the old trust.
• Delaware:
  • Delaware’s statute is designed to minimize tax risks, allowing decanting to preserve GST tax exemptions and avoid estate tax inclusion, provided the trustee follows fiduciary duties.
  • The flexibility to change beneficiaries can raise tax concerns, but Delaware’s statute generally supports tax-neutral decanting if structured properly.
• Nevada:
  • Nevada’s statute is highly tax-friendly, with provisions to ensure decanting does not jeopardize GST tax exemptions or trigger income tax consequences.
  • The lack of notice requirements and broad trustee discretion make it easier to structure tax-advantaged decanting, though careful planning is still required to avoid IRS scrutiny.
• Ohio:
  • Ohio’s statute includes provisions to protect tax benefits, such as ensuring the new trust retains the same GST tax status as the old trust.
  • However, the notice requirement can complicate tax planning if beneficiaries object and trigger a taxable event (e.g., by challenging the decanting as a distribution).
• Missouri:
  • Missouri’s statute also aims to preserve tax benefits, ensuring decanting does not trigger estate or GST tax consequences if the new trust aligns with the old trust’s tax status.
  • Like Ohio, the notice requirement can introduce tax risks if beneficiaries contest the decanting, potentially leading to IRS scrutiny.
• Comparison:

• All five states include tax safeguards to preserve GST tax exemptions and avoid estate tax inclusion, reflecting a common goal of ensuring decanting is tax-neutral.
• Nevada and Delaware’s flexibility makes tax planning easier, as trustees can make significant changes without mandatory beneficiary involvement.

• Contrast:

• Ohio and Missouri’s notice requirements introduce a potential tax risk if beneficiaries object, whereas New York, Delaware, and Nevada offer more streamlined processes with less risk of beneficiary interference.
• New York’s 2019 amendments provide explicit tax protections, making it a leader in addressing IRS concerns compared to the more general provisions in Ohio and Missouri.

5. Unique Features and Restrictions

• New York:
  • Unique Feature: As the first state to enact a decanting statute, New York set a precedent for others. The 2019 amendments expanded the ability to decant trusts with limited discretion, a significant evolution.
  • Restriction: A trustee cannot accelerate remainder interests (e.g., distributing assets to remainder beneficiaries early), which limits flexibility in some scenarios.
• Delaware:
  • Unique Feature: Delaware allows decanting to change beneficiaries, a rare provision that enhances flexibility, especially for trusts with outdated beneficiary provisions.
  • Restriction: The trustee must act in good faith, and decanting cannot violate the material purpose of the original trust.
• Nevada:
  • Unique Feature: Nevada is ranked as one of the best states for decanting due to its lack of notice requirements and ability to convert ascertainable standard trusts into discretionary trusts without beneficiary consent.
  • Restriction: While highly flexible, the trustee must still comply with fiduciary duties, and decanting cannot violate Nevada’s public policy.
• Ohio:
  • Unique Feature: Ohio’s statute integrates with the Ohio Trust Code, providing a cohesive framework for trust administration, including decanting.
  • Restriction: The 60-day notice requirement can delay decanting, and the trustee cannot decant to remove mandatory income interests without beneficiary consent or court approval.
• Missouri:
  • Unique Feature: Missouri’s statute requires the new trust to be for the benefit of the same beneficiaries, ensuring continuity of purpose.
  • Restriction: Like Ohio, the 60-day notice requirement applies, and the trustee cannot decant to eliminate mandatory distributions without consent or court approval.
• Comparison:

• Nevada and Delaware stand out for their flexibility, allowing significant changes to trust terms, including beneficiaries (Delaware) and distribution standards (Nevada).
• New York, Ohio, and Missouri are more protective of the original trust’s intent, with restrictions on altering mandatory distributions or accelerating remainder interests.

Contrast:

• New York’s historical precedence and recent amendments make it a leader in balancing flexibility with tax protections, while Nevada and Delaware prioritize trustee autonomy.
• Ohio and Missouri’s notice requirements and restrictions on mandatory distributions reflect a more conservative approach, prioritizing beneficiary protections over trustee flexibility.

Conclusion

In practice, trust decanting is a powerful tool for modernizing irrevocable trusts, but it requires careful navigation of legal, tax, and family considerations. Trustees should consult estate planning attorneys to ensure compliance and maximize benefits while minimizing risks.