Decanting Your Estate: Re-Write the Document Outside of Court

Decanting lets trustees re-write irrevocable trust agreements by figuratively pouring the assets from an old trust into a new one. Under Florida’s decanting statute, an “absolute” power to invade principal means a power that’s not limited to specific or ascertainable purposes, such as health, education, maintenance, and support (“HEMS”), whether or not the term “absolute” is used. So a Florida individual working with an irrevocable trust agreement that needs tinkered with the trust can simply be re-written under Fla. Stat. 736.04117.

Fla. Stat. 736.04117 reads in relevant part:

(1)(a) Unless the trust instrument expressly provides otherwise, a trustee who has absolute power under the terms of a trust to invade the principal of the trust, referred to in this section as the “first trust,” to make distributions to or for the benefit of one or more persons may instead exercise the power by appointing all or part of the principal of the trust subject to the power in favor of a trustee of another trust, referred to in this section as the “second trust,” for the current benefit of one or more of such persons under the same trust instrument or under a different trust instrument; provided:

1. The beneficiaries of the second trust may include only beneficiaries of the first trust;

2. The second trust may not reduce any fixed income, annuity, or unitrust interest in the assets of the first trust; and

3. If any contribution to the first trust qualified for a marital or charitable deduction for federal income, gift, or estate tax purposes under the Internal Revenue Code of 1986, as amended, the second trust shall not contain any provision which, if included in the first trust, would have prevented the first trust from qualifying for such a deduction or would have reduced the amount of such deduction.

Here is a short list of the things that can be done through decanting:

1. Correct a drafting mistake,
2. Clarify ambiguities in the trust agreement,
3. Correct trust provisions, due to mistake of fact or law, to conform to the grantor’s intent
4. Update trust provisions to include changes in the law, including new trustee powers,
5. Change situs of trust administration for administrative provisions or tax savings
6.  Combine trusts for efficiency,
7.  Allow for appointment or removal of trustee without court approval,
8. Allow for appointment of a special trustee for a limited time or purpose,
9. Change trustee powers, such as investment options,
10. Transfer assets to a social needs trust,
11. Adapt to changed circumstances of beneficiaries, such as substance abuse and creditor or marital issues, including modifying distribution provisions to delay distribution of trust assets,
12.  Add a spendthrift provision
13. Divide a “pot trust” into separate “share trusts”
14. Partition of trust for marital deduction of generation skipping transfer tax planning

Decanting’s all the rage in estate planning circles, as it should be: it’s a legislatively-sanctioned way to privately re-write an irrevocable trust without going through the costs and delays inherent to a judicial modification proceeding. In fact all of this can be done out of court! This saves time and legal expenses.