IRS Has Invited Practitioners to Comment on the Tax Treatment of Decanting

Decanting is the estate planning practitioners term for pouring over (decanting so to speak) the assets of one irrevocable trust to another.  Typically this is done when a trust has a provision that no longer is consistent with the desires of the original parties and they wish to make changes to the Trust.  Since the original trust was irrevocable, the initial trust cannot be amended, so the concept of decanting the assets of the first irrevocable trust into a second irrevocable trust is considered.  The issue has become so popular that it is now on the radar of the Internal Revenue Service that is trying to figure out what tax consequences, if any, such decanting should cause.

In I.R.S. Notice 2011-101, 2011-52 IRB issued on December 27, 2011, the IRS requested that practitioners and any other interested parties provide comments on the income, estate, gift, and generation-skipping transfer tax treatment of the transfer of assets from one irrevocable trust to another irrevocable trust. The IRS asked for comments in writing by April 25, 2012.