Can an Irrevocable Trust be Changed? Trust Decanting under Florida Law
You do not have to be a Sommelier to be familiar with the concept of decanting wine. “Decanting”, the pouring of wine from its original bottle into a different vessel – is a technique utilized for two contemporaneous purposes: to separate the wine from any sediment that has formed it its original container, and to aerate the wine to enrich its flavors. It may be surprising, however, to learn that a similar legal concept exists for Trusts, and is valuable for similar circumstances.
As its name suggests, “Trust Decanting” is when a trustee creates a new trust, moving all the assets from the initial trust into the second trust, to either correct a mistake or unintended result—the hypothetical “sediment” that the initial trust may have incurred, or to strengthen the original purpose of the trust.
Under Florida law, the power to decant a trust is granted to any trustee other than the settlor or beneficiary who has the power to invade the trust principal; called an “authorized trustee.”[1] Following a 2018 revision to Florida’s trust decanting statute, there are now three distinct ways in which a trustee may decant.[2] First, an authorized trustee who is granted “absolute power” to distribute the trust principal (in the instrument that created the trust) to any one beneficiary can decant all or part of the trust principal. This option gives the authorized trustee the most flexibility and deference over the trust. The second, newly-created trust can, among other things, modify the existing powers of appointment, eliminate certain beneficial interests, and even extend the duration of the first trust—all while retaining the same initial trust principal.
Another way to decant a trust involves an authorized trustee who does not possess “absolute power”, meaning that their power is limited to some specific purpose, commonly for uses such as health, education, maintenance, and support, referred to as “HEMs”. This method permits a much narrower scope of what may change in the new trust compared to the original trust. The trustee cannot eliminate beneficiaries in the new trust through decanting, and the second trust must allocate each beneficiary of the first trust a “substantially similar interest.”
The third and final way to decant a trust provided by Florida law allows a trustee to decant a trust to make distributions to/for the benefit of a beneficiary with a disability, called a “supplemental needs trust.” Florida Statute §736.04117(4)(a) (1)-(3) allows for a trustee to decant the first trust into a supplemental needs trust so long as the trustee determines that it will further the purpose of the first trust, it benefits the disabled beneficiary, and it does not add new beneficiaries from the first trust.
The major benefit of decanting a trust is that it can be done without needing to secure court approval. Decanting can be an especially useful tool for correct any mistakes or unintended consequences that have arisen from the terms of the original trust, to enhance the usefulness of the trust, to clarify any unclear terms, or to create a supplemental needs trust that may be valuable to the circumstances.
Are you concerned with the efficiency or operation of a Trust? The decision to decant should be made alongside the help of an experienced estate planning attorney, in order to evaluate your unique circumstances and make the best choice. There may be tax consequences to the decanting of certain trusts, and you should have the advice of counsel who can navigate these issues, such as a LL M in Taxation.
For more information on Trusts, https://www.miamifloridaestateplanninglawyer.com/trust-administration.html
If you have questions about the options available to you as a trustee or as a beneficiary, the attorneys at Chepenik Trushin LLP are here to help you every step of the way. Contact Bart Chepenik at 305-613-3548, or Brad Trushin at 305-981-8889 for more information, and to schedule a consultation.
[1] Fla. Stat. § 736.04117 (1)(b)
[2] Fla. Stat. § 736.04117 (2)-(4)