Post-Mortem Planning Using Trust Disclaimers and Irrevocable Trust Decanting
Many people don’t know that the estate planning process doesn’t always end at a person’s death. In some situations, post-mortem planning (ie: planning after death) is required. Two of such planning options are trust disclaimers and decanting an irrevocable trust document after funding. A trust disclaimer occurs when a beneficiary refuses, or rejects a distribution to them contained in a trust document within nine (9) months of the settlor’s passing. Decanting an irrevocable trust can be understood as “pouring” the assets of an existing irrevocable trust (similar to the process of decanting a wine) into a new trust, leaving the unwanted terms in the original trust.
One type of post-mortem planning is called a trust disclaimer. A trust disclaimer is often used in post-mortem planning in the following circumstances:
- resolve issue(s) with the marital deduction (ie: potential denial of the exclusion);
- resolve issue(s) with the charitable deduction (ie: a grantor has over-funded their marital trust resulting in a potential gift tax); and/or
- allow beneficiaries to reduce specific bequests in order to increase the residuary distributions in the trust.
Disclaimers should be completed in writing under the formalities stipulated by state law. The time limit to execute such disclaimers is nine (9) months from the date of the grantor’s death. If the disclaimer occurs after the deadline, any potential post-mortem benefits will be surrendered.
Decanting an Irrevocable Trust
Another type of post-mortem planning is decanting an irrevocable trust agreement. Decanting is essentially a “do over” in the realm of trust planning. While this type of planning can occur during lifetime (if an irrevocable trust is created and funded), it can also be a great post-mortem planning tool. Specifically, decanting becomes post-mortem planning when a revocable trust becomes irrevocable at death. Trust decanting may be used to facilitate the convenient administration of a person’s trust estate. Sometimes, decanting is undertaken to move the domicile of the trust to a more favorable state. Or, the trustee may need to change the terms of an older trust that no longer fits the current law. Decanting rules originate from state statutes. For instance, F.S. 736.04117 stipulates the decanting rules in Florida.
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