Decanting, Unitrust Conversion, and a Beneficiary's Creditor
Margaret, a Florida resident, created an irrevocable trust in 2018 for her daughter Susan and Susan's descendants. The trust holds $3 million of concentrated stock and names a corporate trustee. The instrument gives a trust protector power to remove and replace the trustee, modify administrative provisions, and direct the trustee to make distributions. It contains a spendthrift clause and a no-contest clause. In 2025 Susan, age 45, asks for a $500,000 distribution to buy a house. The trustee thinks the distribution is unwise because the stock is volatile. Susan's creditor has a $200,000 judgment and seeks to garnish trust distributions. The trust protector wants to decant the trust into a new trust that extends the term to the maximum Florida period, removes Susan's right to compel distributions, and converts the trust to a 4% unitrust. The trustee asks about decanting, unitrust conversion, and creditor rights.
1. May the trust protector direct a decanting? What Florida statute governs, and what limits apply?
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Florida's decanting statute is section 736.04117. It permits a trustee that has discretion to distribute principal to transfer assets to a new trust, subject to notice to qualified beneficiaries. A trust protector can direct the trustee only to the extent the trust instrument grants that power; section 736.0808 recognizes trust protectors and allows the instrument to define their authority. Here the instrument gives the protector power to direct distributions and modify administrative provisions, so a directed decanting can be effective if the trustee otherwise has the statutory power. The new trust may extend the term, but it cannot exceed the perpetuities period in section 689.225. Because this trust was created in 2018, the 360-year period applies. Decanting cannot defeat a beneficiary's vested interest, but Susan's interest appears discretionary, so the trustee and protector can reduce her ability to compel distributions. The trustee must still give the required notice and cannot use decanting to benefit the protector personally or to evade the spendthrift terms.
2. Can the trustee convert to a 4% unitrust under section 738.1041? What procedure and effect apply?
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Section 738.1041, Florida's unitrust conversion statute, allows a trustee to convert a trust to a unitrust if the trustee determines that the conversion is in the best interest of the beneficiaries. The unitrust rate must be not less than 3% and not more than 5%, so 4% is within the permitted range. The trustee must give notice to the qualified beneficiaries, and if a beneficiary objects, the trustee may petition the court for approval. Conversion changes how receipts are allocated between income and principal; it does not enlarge the trustee's discretion to distribute principal or override the spendthrift clause. For a trust holding volatile concentrated stock, a 4% unitrust can smooth distributions and protect principal. It also changes Susan's distribution expectations, because her income interest would be measured by the unitrust amount rather than by actual dividends. The trustee should document the analysis and treat the conversion as a fiduciary decision, not as a way to defeat the creditor.
3. May Susan's creditor reach the trust or compel a distribution?
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Section 736.0502 makes a spendthrift trust unavailable to a beneficiary's creditors and prevents them from compelling the trustee to make a distribution. The exceptions in section 736.0503 include certain claims for child support, alimony, and government obligations; the fact pattern shows only a commercial judgment, so none appears to apply. Because Susan's interest is discretionary and she has no mandatory right to the $500,000, the creditor cannot garnish the trust assets or force the trustee to pay the judgment. The creditor can, however, reach distributions after they are paid to Susan. The trustee should not make a distribution solely to avoid the creditor, but it also should not deny a proper distribution merely because of the judgment. The trustee's duty is to follow the trust terms and the beneficiaries' best interests.