What is decanting?

On Behalf of | Jan 1, 2020 | trusts

Some people are not sure about setting up trusts because they can be hard to change. Irrevocable trusts, for example, cannot be altered unless the beneficiaries consent to it. Fortunately, North Carolina law provides residents with a way to change the terms of their trusts by transferring their trust assets into a completely different trust. This is known as decanting. 

Forbes provides some background on decanting. Decanting a trust is distributing trust assets into a new trust governed by different rules than the old. This process is called decanting due to its resemblance to filling a decanter with wine from an old bottle. In wine decanting, a person pours out wine into a decanter while leaving residue behind in the old bottle. Similarly, trust decanting discards unwanted trust requirements. 

Decanting usually is initiated by the trustee, and is done so for a variety of reasons. Sometimes a trust is set up in one state but a trustee wants to create a new trust in another state with more favorable tax laws. In some cases, individuals are restricted by how they may invest their trust assets and want to set up a new trust in a state with greater investment options. 

Families also contend with changing life circumstances. Parents may set up trusts for their children with the intention to pay out by a certain date or when the children come of age, but then one child develops a substance abuse problem and would likely waste the trust money. Some children suffer disability and cannot make financial decisions. In these circumstances, families may decant their trusts into new trusts with different payout terms. 

However, decanting carries some risks. Sometimes the laws of North Carolina or different states do not permit you to decant into new trusts with your desired terms. For example, you have to be sure whether you must notify beneficiaries or not before you decant a trust. If you create a new trust that violates the law, a judge may invalidate the new trust. 

North Carolina families have differing estate needs, so only read this article as general information. It is not a substitute for the legal advice provided by a professional attorney.