Decanting By Various Means
by James F. McDonough, Jr. on October 8, 2013
Decanting is a popular topic among wealth advisers, trust companies, and tax professionals. In the wine industry, it means putting old wine into a new bottle. In the trust field, it means to transfer assets to a new trust to be governed by a new trust instrument that takes into account changes in law and in the circumstances of the beneficiaries. In legal terms, decanting is the exercise of a discretionary power by a fiduciary to appoint assets to a trust or similar arrangement.
The issue is the source of the discretionary power. Is it found in common law, statute or in the trust instrument? In the absence of a specific case or statute, how does one go about construing this trust law.
Many jurisdictions look to the Restatement of Trusts for guidance in the absence of statutory authority or case law. In 1940, the Florida Supreme Court held that the power to make outright distributions includes the power to create a lesser estate, that is, one in trust. Thus, the trustee could establish a new trust for the beneficiary and transfer assets from the old trust. If the trustee could make an outright distribution of assets to the beneficiary, why not permit a transfer to a new trust created for the benefit of the beneficiary.
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