The “DECANTING” Statute of the Florida Trust Code

Posted on August 15, 2014

There are numerous reasons clients all over Florida leave their assets in trust for their children.  The most common is to help preserve and protect the assets from a variety of creditors.  While being a third party beneficiary to a trust, children can also be a trustee of the trust itself.  Making a child the trustee of his or her own trust can give adult children the flexibility needed to use the trust assets when they require it the most.  To accomplish this goal, attorneys who draft trust documents will often limit the discretion of trustee distribution using the “HEMS” standard, or health education, maintenance, and support.  This ascertainable standard, authorized by the Internal Revenue Code, is sufficient to prevent inclusion in the estate of the trustee beneficiary, but broad enough to take care of most of the intended needs.

However, clients will sometimes also want to give broader distribution power to an independent trustee outside of this standard, and is usually accomplished by stating that the trustee as the power to make distributions for the beneficiary’s “best interests.”  This type of broad power is expressly found in Fla. Stat. § 736.04117(1)(a), which is commonly known as the decanting statute:

(1)(a) Unless the trust instrument expressly provides otherwise, a trustee who has absolute power under the terms of a trust to invade the principal of the trust, referred to in this section as the “first trust,” to make distributions to or for the benefit of one or more persons may instead exercise the power by appointing all or part of the principal of the trust subject to the power in favor of a trustee of another trust, referred to in this section as the “second trust,” for the current benefit of one or more of such persons under the same trust instrument or under a different trust instrument; provided:

1. The beneficiaries of the second trust may include only beneficiaries of the first trust;

2. The second trust may not reduce any fixed income, annuity, or unitrust interest in the assets of the first trust; and

3. If any contribution to the first trust qualified for a marital or charitable deduction for federal income, gift, or estate tax purposes under the Internal Revenue Code of 1986, as amended, the second trust shall not contain any provision which, if included in the first trust, would have prevented the first trust from qualifying for such a deduction or would have reduced the amount of such deduction.

This type of power to make distributions outside of the HEMS standard allows a trustee to so call “decant” the principle assets within the trust to a different trust.  This flexibility is important to build into a trust because unforeseen circumstances may make certain trust terms impracticable.  It is especially important when situations arise where a trust document does not meet the requirements for any statutory or common law means for modification. 

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.

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