In the first part of the article, we talked about changes to Florida’s trust decanting law in 2018. Now, let’s look at how to actually decant a trust and how it might affect someone with special needs. There are different options for decanting depending on the trustee’s power to distribute money from the trust. If the trustee has a lot of power, they can make big changes to the trust. If their power is more limited, they can only make certain changes. If the changes will help someone with a disability and still fulfill the trust’s purpose, the trustee can create a new trust for that person, regardless of their power level. If a trustee wants to move trust assets to a special needs trust for someone with a disability, they have different options. If the trustee has the power to use the trust’s money, they may be able to do this without many restrictions. But they have to be careful not to reduce the beneficiary’s rights in the process. It’s possible to move some parts of the trust under one law and move the disabled person’s share under a different law, if that’s the best choice. The rules around decanting a trust can make it difficult or even impossible to do. A trustee may not be able to decant a trust if the trust specifically says they can’t. Decanting might also cause problems with tax benefits or with the trust being able to own certain types of stock. So, even if a trustee wants to change the terms of a trust, they have to be careful and make sure they’re not causing any problems. Decanting a trust, which means transferring assets from one trust to another, can’t be used to change a trust’s tax status. Whether a trust is considered a grantor trust or not for tax purposes doesn’t affect whether it’s considered settled by the beneficiary or a third party for public benefits eligibility. For example, a trust set up by someone else for a disabled person is different from a trust set up by the disabled person themselves, even if they both have grantor trust status for tax purposes. An authorized trustee can’t move money from a trust that has to make yearly payments to a beneficiary, if it would make the beneficiary get the money over a shorter time. If the first trust has an IRA that pays out based on the beneficiary’s life expectancy, it could affect the beneficiary’s eligibility for public benefits. In that case, it might make sense to move the money to a different trust that lets the trustee hold onto the yearly payments and only give them out when needed. But the new trust has to follow the same rules for how long it can pay out the money, so it doesn’t break the rules about moving money around. Decanting is like pouring old wine into a new bottle. It’s a way for a trustee to move the assets from one trust into a new trust with different rules. But there are some rules the trustee has to follow when decanting. For example, they can’t break the rule against perpetuities, increase their own pay, or get rid of their responsibility for mistakes. They also have to be careful if they want to move the trust to another state, because the tax and legal rules might be different there. It’s important for the trustee to think about all of this before making any changes. Decanting is when a trustee changes the terms of a trust to create a new one. Before this can happen, the trustee has to give notice to all the people involved in the original trust, like the beneficiaries and other trustees. After 60 days, if no one objects, the trustee can go ahead with the decanting. If the trustee wants to do it faster, they can ask everyone to sign a paper saying they’re okay with it. If everyone agrees, the trustee can make the changes right away. Decanting a trust in Florida doesn’t always require court approval, but it might be a good idea in certain situations. It can make things easier for beneficiaries and protect the trustee from legal issues. If the trust is a special needs trust, decanting could affect the beneficiary’s eligibility for public benefits, so it should be done carefully. In 2018, the law changed to allow trusts for people with disabilities to be changed to a different kind of trust. This new trust can help the beneficiary qualify for government benefits. In some cases, the new trust may be considered a type of trust that allows the beneficiary to keep their benefits, even if they didn’t start the trust or have control over it. One court said that if a trust was changed before the person with a disability could take money out of it, the new trust would still be considered a special needs trust. But this decision was made in a different state, not in Florida. Sometimes, a trusted person might change a special trust for a disabled person to make sure they can still get government benefits. If the trust has rules that make the person ineligible for benefits, or if their needs have changed, then the trusted person can move the money to a new trust without affecting the person’s benefits. But they have to follow strict rules and make sure the new trust follows all the government’s requirements. If the trusted person is also the disabled person’s parent or guardian and wants to set up the new trust, they have to make it clear that they’re doing it as an individual, not as a trustee. Decanting 100% of the assets from one d4A trust to another might make the Social Security Administration think the first trust was ended. This could make the trust have to pay back all Medicaid money. Instead, it might be better to change the first trust or to give some money to the disabled person and have them start a new trust. The second option could make the disabled person lose benefits for a month, but it might be worth it to fix problems with the first trust and avoid some risks. Sometimes, it can be difficult to keep a d4A trust going if the money in it goes below a certain amount or if it becomes too expensive to manage. It can also be hard to find a trustee who knows all the rules for managing the trust and keeping the disabled person getting their benefits. In these cases, it might be a good idea to move some of the money from the d4A trust to a special needs trust instead. This can help save money and make it easier to manage the trust. It won’t affect the Medicaid pay-back rules, and it should still keep the disabled person eligible for their benefits. Special needs trusts are managed by professionals who know a lot about government benefits, and they don’t usually have the same high costs as other trustees. Overall, it can be a good idea to move money from a d4A trust to a special needs trust in certain situations. When you decant a trust, there are potential tax consequences to consider. Gift tax and estate tax may not be an issue if the trustee is not a beneficiary, but it’s important to follow the rules to avoid potential taxes. Income tax is generally not a concern unless the trust is foreign or if property is sold or exchanged during the decanting process. Additionally, if you have a GST tax-exempt trust, you can still maintain that status as long as you follow the rules closely. However, it’s important to consider the age and distribution provisions of the original trust to ensure you don’t inadvertently trigger taxes by decanting to a new trust. Decanting is a legal process where a trustee can move the assets of one trust to another trust. In Florida, a trustee is not required to do this, even if it would benefit someone with a disability. However, if a trust is drafted with specific language or powers, it could make the trustee more likely to decant. Decanting is becoming more popular as a way to make changes to a trust. This text explains the Florida Statutes regarding the decanting of trusts, which is the process of transferring assets from one trust to another. It also discusses the rights and responsibilities of trustees and beneficiaries in this process. It emphasizes the importance of following state and federal laws, especially when it comes to the eligibility of disabled beneficiaries for public benefits. It also mentions the need for consulting with qualified tax professionals from other jurisdictions to ensure compliance with relevant laws. Overall, it provides important information for anyone involved in trust administration in Florida. In some situations, a trustee can move assets from one trust to another to benefit the beneficiaries. This can be helpful for people with disabilities who receive government benefits. The process is called “decanting.” It’s important to follow specific rules to make sure everything is done legally. It’s also important to consider any tax implications. If a beneficiary doesn’t agree with the changes, it could cause problems. But in some cases, a court can approve the changes even if a beneficiary disagrees. Decanting a trust means pouring the assets from one trust into a new trust with different rules. This process can have tax consequences and may involve the person who created the trust, called the settlor. It’s important to be careful with these rules to avoid unintended taxes. In Florida, the trustee can choose to decant a trust, but they’re not required to do so. And the rules can be changed through careful planning. Amy J. Fanzlaw is a lawyer who focuses on helping older adults and people with special needs with legal issues. She is certified in wills, trusts, and estates, as well as elder law. She also helps with long-term care planning. She chairs a committee on elder law certification and sometimes serves as an expert witness in court.
Source: https://www.floridabar.org/the-florida-bar-journal/new-opportunities-to-decant-in-florida-part-ii/
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