Understanding the Florida Decanting Statute

When you create an irrevocable trust, it’s natural to think that it’s set in stone—untouchable and unchangeable. After all, the very word “irrevocable” suggests something permanent. However, the reality today is more complex. While irrevocable trusts were once difficult to modify, recent legal changes, especially in Florida, have made it much easier to make adjustments. One of the key methods for doing this is through a process called decanting.

If you’re wondering what the Florida decanting statute is all about and how you can use it to modify a trust, keep reading. We’ll break down the basics, recent updates, and what you need to know to leverage this legal tool.

What Is Trust Decanting?

Decanting, in simple terms, is when the trustee of a trust creates a second trust and transfers the assets from the original trust to the new one. The old trust becomes obsolete, while the new trust takes over the management and distribution of the assets.

This legal tool is commonly used for a variety of reasons:

• Fixing drafting mistakes in the original trust.

• Updating the trust to comply with new laws or regulations.

• Converting the trust into a supplemental needs trust (SNT) for a beneficiary who has a disability.

One of the biggest advantages of decanting is that it allows for modifications to irrevocable trusts without the need for court intervention, something that was traditionally a difficult and expensive process.

Florida’s Trust Decanting Statute: Key Changes

While decanting was available in Florida as far back as the 1940s, it wasn’t until 2018 that significant changes to the Florida Trust Decanting Statute were made. These changes have expanded the powers of trustees and made the decanting process more accessible.

Here’s a breakdown of the key updates:

1. Absolute Power for Trustees: A trustee with “absolute power” over a trust can decant it at their discretion, meaning they can make changes to the principal, modify the distribution of assets, and more. This power was granted in earlier laws, but it’s now more clearly defined and streamlined.

2. Decanting Without Absolute Power: Even if a trustee doesn’t have “absolute power,” decanting is still possible under certain conditions. If the trust includes a standard for the beneficiary’s health, education, maintenance, or support (often called the HEMS standard), the trustee can still decant the trust, but the changes to the new trust will be limited.

3. Creation of Supplemental Needs Trusts: If the trust wasn’t initially designed as a supplemental needs trust but needs to be converted into one, decanting can make that possible. This is especially useful for individuals with disabilities.

4. Default Power for Trustees: Decanting has now become a default power for all trustees under Florida law. The only way to prevent decanting in the future is to include a broad prohibition in the trust itself.

5. Authorized Trustees: The decanting power is generally available to “authorized trustees,” who are not typically the grantors or beneficiaries of the trust. For example, if a grantor wishes to name a trustee who is also a beneficiary, they must include provisions that allow for the appointment of a co-trustee to exercise decanting powers.

Types of Decanting

There are two main types of decanting under Florida law:

1. Absolute Power Decanting: If a trustee has “absolute power” over a trust, they can make sweeping changes, such as altering the interests of beneficiaries, changing the succession of the trust, or making significant administrative changes.

2. Limited Power Decanting: When the trustee doesn’t have absolute power, the decanting process is more restricted. Typically, this limits modifications to administrative issues, such as investment powers or changes in the succession order.

Additionally, trustees who are authorized to invade the principal of the original trust can create a supplemental needs trust through decanting, which can be particularly helpful for beneficiaries with disabilities.

Important Tax Considerations

Before decanting, it’s crucial to be aware of the tax implications. The IRS doesn’t offer a “no-rule” letter for decanting, meaning you can’t get official confirmation from the IRS before proceeding with decanting. This means it’s easy to make mistakes if you’re not careful, so hiring an experienced tax attorney who understands the nuances of trust taxation is highly recommended.

Key Rules for Florida Trust Decanting

If you’re considering decanting, keep these important rules in mind:

• Even if a trustee’s ability to modify the principal is limited, they may still have the power to decant the trust.

• The new rules require a trustee to reasonably believe that a beneficiary is either incapacitated or eligible for government assistance in order to modify the trust into a supplemental needs trust.

• A 60-day notice period is required before decanting can take place. During this time, beneficiaries can object to the decanting. The trustee must also provide certain documentation to meet state requirements.

Conclusion: The Benefits and Risks of Trust Decanting

Florida has greatly expanded the options available to trustees for decanting irrevocable trusts, making it a powerful estate planning tool. But the decanting process isn’t without its complexities. The laws surrounding decanting, along with tax regulations, are intricate and should not be navigated without expert legal advice.

If you’re considering decanting your trust—or if you simply need advice on estate planning—the Law Offices of Mary E. King can help. With years of experience guiding clients through the estate planning process, we can ensure that your trust is modified in accordance with Florida law, and that you understand all the tax implications involved.