Decanting refers to the distribution of trust property of one trust (the “first trust”) to another trust (the “second trust”). Over the past several years, the number of states specifically authorizing decanting by statute has grown rapidly. As of March 2014, at least twenty-two states have passed or proposed a state decanting statute.
Notwithstanding this proliferation of decanting statutes at the state level, the Internal Revenue Service (the “IRS”) has not provided authoritative guidance regarding the proper tax treatment of decanted trusts.
Baker Hostetler discusses some of the tax issues raised by decanting.