While many things get better with age, the same cannot be said for some irrevocable trusts. If you are the beneficiary of trust created by your grandfather fifty years ago, that trust may no longer make sense. If you created an irrevocable trust yourself 20 years ago in a completely different tax environment, it may no longer makes sense. In many cases, the trust can be fixed by “decanting” the old broken trust into a brand new one. When decanting will not work, a judicial modification may make sense.
The word decant means to pour wine from one container into another so its aromas and flavors will be more vibrant upon serving. Decanting an irrevocable trust means transferring some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.
Modifying a trust makes can be helpful under several different circumstances, including when you’d like to:
- Change the trustee provisions to clarify who can or cannot serve as the trustee;
- Expand or limit the powers of the trustee;
- Convert a trust that terminates when a beneficiary reaches a certain age into a lifetime trust;
- Change a support trust into a full discretionary trust to protect the trust assets from the beneficiary’s creditors;
- Clarify ambiguous provisions or drafting errors in the existing trust;
- Change the governing law or trust situs to a less taxing or more beneficiary friendly state;
- Add, modify, or remove powers of appointment for tax or other reasons;
- Merge similar trusts into a single trust for the same beneficiary;
- Create separate trusts from a single trust to address the differing needs of multiple beneficiaries; or
- Provide for and protect a special needs beneficiary.
In trusts that we create today, we build in the ability to make many of these changes through trust protectors. Many attorneys do not use trust protectors, and older trusts probably will not have trust protector provisions. A trust agreement may also contain specific instructions with regard to when or how a trust may be decanted. However, trusts typically do not include these provisions either.
Fortunately, North Carolina has a trust decanting statute that makes this possible. There are several conditions that the new trust must meet. There are also tax issues that must be considered. However, decanting can take an inadequate trust and make it work. Decanting is not the only way to fix a broken irrevocable trust. We can help you evaluate options available to fix your broken trust and determine which method will work the best for your situation.