Decanting a trust is the process of transferring assets from an existing trust into a new trust, often with modified terms, to better meet the needs of beneficiaries.
This strategy allows trustees to adapt old or inflexible trusts without requiring court approval in many cases.
This article explores:
Key Takeaways:
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Decanting a trust means moving assets from one trust into another trust with different terms, similar to pouring wine from one bottle to another.
The new trust can adjust distributions, extend terms, or add protections that the original trust lacked.
This is often used when the original trust’s terms are outdated or too restrictive.
When a trust is decanted, the assets of the original trust are transferred into the new trust. The original trust may remain in existence but typically holds no active assets.
Beneficiaries of the original trust generally receive similar rights under the new trust, though some terms can be altered if permitted by state law.
Trusts are decanted to enhance flexibility, protect beneficiaries, and address changes in law or family circumstances. Common reasons include:
The primary advantages of decanting a trust include increased flexibility to update outdated terms and enhance tax or estate planning strategies. These allow trustees to better meet the needs of beneficiaries while optimizing the trust structure.
Key advantages include:
One of the main risks of decanting a trust is potential legal challenges, and trustees must also be aware of other important considerations. These include:
Most US states now allow decanting of trusts, with South Dakota, Nevada, and Tennessee offering the broadest flexibility.
The rules, notice requirements, and trustee powers vary by jurisdiction, as summarized in the table below:
| State | Has Decanting Statute? | Notice to Beneficiaries Required? | Flexibility Level |
| South Dakota | Yes | No | Broad |
| Nevada | Yes | No | Broad |
| Tennessee | Yes | No | Broad |
| New Hampshire | Yes | No (except charitable trusts) | Moderate |
| Delaware | Yes | No | Moderate |
| Ohio | Yes | Yes | Moderate |
| Alaska | Yes | Yes | Moderate |
| Arizona | Yes | No | Limited |
| Virginia | Yes | Yes | Limited |
| Illinois | Yes | No | Moderate |
| Missouri | Yes | No/Yes | Limited |
| Indiana | Yes | Yes | Moderate |
| South Carolina | Yes | No/Yes | Moderate |
| Kentucky | Yes | No/No | Moderate |
| Michigan | Yes | Yes | Limited |
| North Carolina | Yes | No/No | Moderate |
| Texas | Yes | No/No | Moderate |
| Florida | Yes | Yes | Limited |
| Rhode Island | Yes | Silent/No | Limited |
| Wyoming | Yes | No | Limited |
| New York | Yes | Yes | Limited |
| Wisconsin | Yes | No/No | Limited |
Yes, in most cases, a decanted trust is treated as a new legal entity for federal tax purposes, which generally requires obtaining a new Employer Identification Number (EIN) from the IRS.
However, if the decanting is considered a continuation of the same trust under state law and the trust retains the same grantor and tax attributes, the IRS may allow the old EIN to remain.
Trustees should consult a tax advisor to confirm whether a new EIN is necessary based on the specific structure and type of decanting.
Generally, an irrevocable trust cannot be decanted into a revocable trust because revocable trusts allow the grantor to retain control—an outcome contrary to the nature of an irrevocable trust.
Some jurisdictions may allow modifications of an irrevocable trust via decanting into another irrevocable trust, but converting into a revocable trust is typically not permitted and carries significant tax and legal risks.
Decanting a trust is a strategic tool that empowers trustees to adapt estate plans to evolving family needs, tax considerations, and legal changes.
While it offers flexibility and potential benefits, its use requires careful planning, awareness of state-specific rules, and attention to fiduciary responsibilities.
Done correctly, decanting can modernize a trust and enhance protections for beneficiaries, but it should always be approached with professional guidance to navigate legal and tax complexities effectively.
The 2-year rule allows certain appointments or modifications made within two years of a grantor’s death to be treated as if they were part of the deceased’s will.
This ensures that such changes are included in the estate for tax purposes, potentially reducing inheritance tax (IHT) liabilities.
Some states also limit trustee decanting powers during the first two years of a trust’s existence to prevent premature or imprudent modifications.
A revocable living trust is generally the best option for most families.
It allows the grantor to manage and adjust assets during their lifetime while avoiding probate after death.
However, for families seeking greater asset protection or tax advantages, an irrevocable trust may be more suitable, as it removes assets from the taxable estate and safeguards them for long-term beneficiary support.
Using a combination of wills and trusts is often ideal. A living trust can avoid probate, control distributions, and provide continuity, while a will addresses residual assets and personal bequests.