Decanting: A Powerful Tool for Disgruntled Trust Beneficiaries

“I’m the beneficiary of several trusts and I would love to be able to combine them into a single trust.”

“The trustee of my trust and I are not getting along. We’d like to go our separate ways, but the trust doesn’t provide enough flexibility in appointing a new trustee.”

“The income taxes I am paying on my distributions from the trust is killing me. Is there any way that I can avoid or lessen them?”

“My brother and I are beneficiaries of a trust that mom and dad set up for us. He’s engaged and I’m worried that if he ever gets divorced his ex will create a problem for him or even me. Is there anything we can do to protect the assets?”

“My siblings and I are all beneficiaries of a trust that mom and dad set up, but we have different needs and investment goals. Before things get rough between us because of our disagreement, we are hoping that there is a way to separate out our shares so that we keep the peace.”

“My son is likely to receive government benefits in the future and I’m worried that the way his grandparents set up his trust will either disqualify him or just make the process much more difficult. Is there anything we do?”

We get these questions all the time from our clients. They are beneficiaries of a trust that started off well but changes over time have made the trust cumbersome, difficult, or open to creditor claims. Think of it like wine. At first, the wine is fresh. But over time sediment builds up and it can spoil the wine’s flavor and aroma. With wine, there is a solution. You can decant the wine by pouring it from the bottle into a wide-based container. Decanting separates the wine from the sediment. In the process, it freshens the wine up and opens more of its surface area to oxygen, in a sense renewing the wine.

Trusts can also be decanted. The assets in the trust can be ‘poured’ from the old trust into a new trust, with new terms and conditions. Or the assets in two trusts with similar terms can be ‘poured’ into one new trust, decreasing the administrative and costly expense of the trust administration. The assets can even be ‘poured’ into a new trust in a different state with more favorable tax laws.

Decanting is something that is only gaining steam within the estate planning world, as attorneys are becoming more familiar with this powerful tool. Currently, twenty-nine states have enacted laws blessing this process of decanting, North Carolina being one of them. While there is broad agreement over the ability to decant, each state has its own specific laws, some states being more favorable than others. Some require notices to be sent to beneficiaries, while other states do not. Some states allow the new trust to have less restrictive standards for distributions, while others require the new trust to mirror the same standards as the old one. There are also obstacles to decanting that need to be addressed, including potential tax pitfalls. In other words, you need an attorney to assist you to make sure the wine doesn’t spill.

The attorneys at Strauss Attorneys have licenses in four states (North Carolina, Florida, South Carolina, and Tennessee). We are familiar with the procedures that need to be observed in decanting as well as its obstacles and pitfalls. If you, or a client of yours, wants to explore this option, have them call us for a free consultation at our Asheville office (828-258-0994), our Hendersonville office (828-696-1811), or our Raleigh office ( 919-825-0932).