An irrevocable trust was once known to be untouchable. This may no longer be true. “Decanting” an irrevocable trust is an estate planning technique that involves pouring the assets from the first trust to a new one with better terms to meet the needs of the client. Common law provides authority for trust decanting, but many states, including Florida, have statutes permitting this technique.
A. Absolute power – Florida Statute §736.04117 provides that a trustee who has absolute power to invade principal under the terms of the first trust may make distributions to a second trust.
B. Fixed Income, and Interest – The decanting technique cannot be used to reduce any fixed income, annuity or unitrust interest in the First Trust.
C. Beneficiaries – Each beneficiary of the Second Trust must have been a beneficiary of the First Trust.
D. 60 Day Notice – In order to decant, the trustee of the First Trust is required to provide all the qualified beneficiaries of the First Trust written notice of the trustee’s intention to decant at least 60 days prior to the effective date of the trustee’s exercise of his decanting power.
E. In Writing – Also, the exercise of the decanting power must be done in writing, signed, and acknowledged by the trustee and filed with the records of the first trust.
The documents used for a trust decanting are similar to those used for a resolution to distribute property. A written document that provides the terms of the trustee’s discretionary exercise of the power to decant should set out the terms of this power to appoint trust property further in trust. This document should also contain some background information such as the current trustees of the First trust and the trustees that are exercising the decanting power, when the first trust was formed and by whom, the relevant terms of the first trust, the trustee’s authority for the decanting (by statute or written in the first trust), and the appointee trust that will receive trust property from the original trust. Further, this document should include trustee resolutions designating and appointing assets of the original trust to the appointee trust and directing the appointed assets be held in accordance with the appointee trust.