If you’re working with the trustee of an irrevocable trust that needs fixing for some reason, your first thought should be to simply re-write the thing by using F.S. 736.04117, Florida’s trust “decanting” statute. Decanting allows you to re-write an irrevocable trust agreement by figuratively pouring the assets from the old trust into a new trust (like decanting a bottle of wine, get it?). And to make a good thing better, our decanting statute was legislatively overhauled in 2018 to make it even easier to modify irrevocable trusts in Florida.
Not surprisingly, decanting is 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. (Yes, this all gets done out of court.) For a solid general introduction to decanting you’ll want to read Decanting is Not Just for Sommeliers, co-authored by Texas law prof. Gerry W. Beyer. Here’s an excerpt:
Times change, needs change, and laws change thus giving a trustee motivation to decant. Examples of reasons to decant include to:
- Correct a drafting mistake;
- Clarify ambiguities in the trust agreement;
- Correct trust provisions, due to mistake of law or fact, to conform to the grantor’s intent;
- Update trust provisions to include changes in the law, including new trustee powers;
- Change situs of trust administration for administrative provisions or tax savings;
- Combine trusts for efficiency;
- Allow for appointment or removal of trustee without court approval;
- Allow for appointment of a special trustee for a limited time or purpose;
- Change trustee powers, such as investment options;
- Transfer assets to a special needs trust;
- Adapt to changed circumstances of beneficiary, such as substance abuse and creditor or marital issues, including modifying distribution provisions to delay distribution of trust assets;
- Add a spendthrift provision;
- Divide a “pot trust” into separate share trusts;
- Partition of trust for marital deduction or generation-skipping (GST) transfer tax planning.
But before you pull the trigger on one of these transactions you’ll also want to do a deep dive into all the potential tax traps that seem to bedevil estate planners at every turn. And to do that you’ll want to read An Analysis of the Tax Effects of Decanting, co-authored by super star tax lawyer Jonathan Blattmachr, as well as the more recent Tax Considerations in Trust Terminations, Modifications, and Decanting Under Connecticut’s New Uniform Trust Code, by Ronald Aucutt, another super star tax lawyer.