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What does it mean for a Trustee to decant?

| Jan 4, 2016 | Estate Planning, Probate |

A trustee may implement a process known as “decanting” whereby the trust assets of an original trust may be transferred into a new trust. This can be done even if the original trust has become irrevocable.

Florida Statutes, Section 736.04117, entitled “Trustee’s Power to Invade Principal in Trust” allows this subject to certain limiting provisions. First, the trust instrument must not expressly forbid such action. Second, the trustee must have absolute power under the terms of the original trust to invade the principal of the trust in order to make distributions to or for the benefit of one or more persons. In that case, the trustee 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 for the current benefit of one or more of such persons.

In order for a trustee to decant, the beneficiaries of the second trust may include only beneficiaries of the first trust. The second trust may not reduce any fixed income, annuity, or unitrust interest in the assets of the first trust. In addition, 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.

Because decanting by a trustee can be tricky, a trustee should always seek experienced legal counsel before attempting to do so.

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