IRS Requests Information on Trust Decanting

In Notice 2011-1011, the IRS requests comments from practitioners regarding the tax implications of trust “decanting”—when a trustee transfers all or a portion of an irrevocable trust’s principal to another irrevocable trust. The IRS is requesting information on when and under what circumstances such transfers are not subject to income, gift, estate, and/or GST taxes.

Many states expressly allow trust decanting, and life insurance trusts often contain provisions allowing for trust decanting. A court need not approve the transfer, but the trustee does have certain limitations to help ensure the beneficiaries are not substantially modified.

See Greg Herman-Giddens, IRS Requests Comments on Trust Decanting, North Carolina Estate Planning Blog, Dec. 20, 2011.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.