Florida Decanting Statute Explained

It’s natural to think that an irrevocable trust you created (or was created for your benefit) is impervious to everything. After all, the word ‘irrevocable’ is right there in the name. This may have been true in the past, but today, the reality is a far more complicated. 

For instance, it used to be next to impossible to modify a trust without going to court. Nowadays, although there are limits put in place, modifications are a lot easier to accomplish. 

One of the most common methods of achieving this is the so-called decanting.

But what does Florida decanting statute describe and how can you leverage it to modify a trust?

In the next few minutes, we’ll explain everything you need to know. Let’s go over the basics first.

What Is Decanting?

Decanting is a legal doctrine that describes the situation in which a trustee of a trust creates a second trust and transfers all the assets from the old trust to the new one. As a result, the old trust is rendered obsolete while the new trust and its provision govern the use of the assets contained in the trust. 

There are multiple reasons to decant a trust. For example, it may be done to fix drafting mistakes, update the trust in accordance with new laws, or convert it into a trust for supplemental needs. 

The biggest advantage of decanting is the fact it allows you to make modifications to irrevocable trusts without abatement. 

Even though Florida laws allowed decanting as far back as the 40s, not many trusts allowed the trustees the option to decant. Back then, trustees could make changes to the principal of the trust only if they were provided with the so-called “absolute power”.

Very recently, all of that changed.

Florida Trust Decanting Statute Revisions

In 2018, the Florida decanting statute went through a major overhaul. Here’s what the Florida trust decanting statute states at the present moment:

• Trustees can still decant a trust if they are provided “absolute power” 
• A trustee who doesn’t have “absolute power” can decant if the distribution of power is limited by the health, education, maintenance, and support standard (HEMs in short). Keep in mind that in this scenario, the provisions in the new trusts will be limited.
• Trust that doesn’t qualify as a supplemental needs trust can be transformed into one 

The main takeaway from the changes to the Florida decanting statute is that decanting is now considered a default power for all the trustees included in the trust. Hence, one of the only ways to stop future modifications is to include a broad prohibition against any decanting. 

Individuals considered “authorized trustees” will be able to exercise their decanting power. This usually applies to those who are not the grantors or beneficiaries of the trust. If grantors wish to enable this option but choose to name a single trustee who is also a beneficiary, they must include a provision that allows trustees to appoint a co-trustee in order to exercise their decanting power.

Main Types Of Decanting

Now that we explained the changes to the Florida decanting statute, it’s time to go over the different types of decanting.

As we already mentioned, trustees can have “absolute power”. If this is the case, they have the right to distribute the assets in the trust at any time in any amount at their discretion. For instance, they are free to divide the interests of different beneficiaries, change the succession order, and make a variety of other administrative and substantive provision changes.

Without having “absolute power”, the modifications to the second trust will typically be limited only to administrative issues such as investment powers or succession of the trust.

If a trustee was given the power to invade the principal of the initial trust, they may create a second trust which will qualify as a supplemental needs trust. 

Do note that before engaging in the decanting, you have to be familiar with the tax considerations of this practice. In other words, you may need to hire a tax attorney who can guide you through the process and explain the intricacies of tax law and how it relates to trust. 

For starters, decanting falls under the IRS’s “no rule” list, meaning it’s impossible to request a letter ruling and receive the green light from the IRS before the decanting. 

There are also a multitude of other pitfalls that are easy to overlook if you try to navigate the treacherous waters of decanting without expert legal advice. 

Key Rules Of Decanting

Before you engage in decanting, here are some important considerations outlined in the Florida decanting statute:

• Even in cases in which the trustee’s ability to make changes to the principal is limited, they may still have the power to decant the trust. Hence, the requirements of the old statute are no longer a requisite.
• While the new requirements state a beneficiary must have a disability if they’re allowed to modify the trust into a supplemental needs trust, this doesn’t depend on whether they’re eligible for government assistance or have been deemed incapacitated by the government. To put it differently, the trustee must reasonably believe the beneficiary is incapacitated or qualifies for government assistance.
• The Florida decanting statute requires a 60-day written notice period and outlines which parties must be notified of the intent to decant. It also prescribes exactly which documentation is needed to meet state requirements. The beneficiaries have the right to object to decanting during the 60-day timeframe.

Call The Law Offices Of Mary E. King If You Need Assistance With Decanting

The Sunshine State has greatly expanded the options concerning decanting of trusts, making this legal option a favorable estate planning tool that citizens of Florida can leverage. However, the laws and tax regulations regarding this practice are quite complex, so much so that it’s not recommended you engage in decanting without a legal expert on your side. 

If you require legal advice or assistance with anything related to estate planning, Law Offices of Mary E. King is your best choice. We can help you navigate this process and offer guidance to ensure your estate planning practices always follow the proposed legal guidelines.

Call 941-906-7585 or fill out our online contact form to schedule a free consultation where we can clarify everything you need regarding your trust. 

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.