Can it be that in Nevada a trustee by statute may now decant an income-only trust into a trust whose trustee has current principal-invasion authority?

Charles E. Rounds, Jr.
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Even in the absence of statutory authority a trustee with equitable discretionary authority to make principal distributions to or for the benefit of the beneficiary has long had equitable authority to distribute some or all of the entrusted principal to the trustee of another trust, provided the recipient trust is for the benefit of the beneficiary and the terms of the trust that is to be decanted are not violated thereby. It goes without saying that equity would frown on an effort to reverse decant, that is to distribute the principal of an income-only trust to the trustee of a trust under which the trustee would have the current principal-invasion authority. Apparently it is the case in Nevada, at least according to one commentator, that the trustee of a trust with “mandatory income interests” may now be judicially authorized to decant into a fully-discretionary trust, “unlike the decanting statutes of most other states.” See Neil Schoenblum, Statute of Liberty, 24 STEP Journal, Issue 9, at pg. 59 (Nov. 2016) (citing to Nevada Revised Statute 163.556, specifically Section 1, which may be accessed at http://www.leg.state.nv.us/nrs/nrs-163.html#NRS163Sec556). Presumably any retroactive application of the statute’s reverse-decanting provisions would unconstitutionally compromise the equitable property rights of remaindermen, absent special facts. As to future trusts, it seems clear that the express terms of an income-only trust may effectively deprive the trustee of such reverse-decanting authority. Trust scriveners take note. The decanting concept is discussed generally in §3.5.3.2(a) of Loring and Rounds: A Trustee’s Handbook (2017), the relevant portions of which section are reproduced below.

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