Role of Beneficiary Crucial in Determining if Decanting Is Taxable

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The question of whether a decanting of assets from one irrevocable trust to another rises to the level of a taxable gift revolves in large part around the role of the beneficiary whose beneficial interest is being reduced or eliminated, Mike Gordon, a director with Gordon, Fournaris & Mammarella, says. It should not be considered a taxable gift if a beneficiary has agreed to the decanting and the decanting is for a legitimate reason, he says, such as protecting the beneficiary's assets from creditors, or a change aimed at distributing the assets to the beneficiary when they are more mature. In a situation, for instance, where a trustee seeks to decant to a trust where a beneficiary will receive assets at a later age, the beneficiary's mere acquiescence to a decanting is not likely to be considered a taxable gift, Gordon says.

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