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Irrevocable trusts provide various estate planning benefits, such as reducing estate taxes and helping to ensure assets are distributed as you wish. But estate planning isn\u2019t a \u201cset it and forget it\u201d process. Families, tax laws and financial circumstances can change. A major downside of irrevocable trusts is that they\u2019re difficult to update once they\u2019ve been signed and funded. That\u2019s where trust decanting can help.<\/p>\n
What does it mean to \u201cdecant\u201d a trust?<\/strong><\/p>\n The term decanting comes from pouring wine from one bottle to another. In estate planning, it means transferring assets from an existing trust to a new trust that can better achieve your goals.<\/p>\n Depending on the trust\u2019s language and the provisions of applicable state law, decanting may allow a trustee to:<\/p>\n Unlike assets transferred at death, assets that are transferred to a trust don\u2019t receive a step-up in basis. As a result, they can subject the beneficiaries to capital gains tax on any appreciation in value. One potential solution is to use decanting.<\/p>\n Decanting can authorize the trustee to confer a general power of appointment over the assets to the trust\u2019s grantor. This would cause the assets to be included in the grantor\u2019s estate and, therefore, to be eligible for a step-up in basis. Depending on the size of the estate, this might make sense given today\u2019s high gift and estate tax exemption ($15 million in 2026).<\/p>\n Beware of your state\u2019s laws<\/strong><\/p>\n Many states have decanting statutes, and in some states, decanting is authorized by common law. Either way, it\u2019s critical to understand your state\u2019s requirements. For example, in certain states, the trustee must notify the beneficiaries or even obtain their consent to decant.<\/p>\n Even if decanting is permitted, there may be limitations on its uses. Some states, for example, prohibit the use of decanting to eliminate beneficiaries or add a power of appointment. And most states won\u2019t allow the addition of a new beneficiary. If your state doesn\u2019t authorize decanting, or if its decanting laws don\u2019t allow you to accomplish your objectives, it may be possible to move the trust to a state whose laws meet your needs.<\/p>\n Don\u2019t forget about potential tax implications<\/strong><\/p>\n One of the risks associated with decanting is uncertainty over its tax implications. For example, let\u2019s say a beneficiary\u2019s interest is reduced. Has he or she made a taxable gift? Does it depend on whether the beneficiary has consented to the decanting? If the trust\u2019s language authorizes decanting, must it be treated as a grantor trust? Does such language jeopardize the trust\u2019s eligibility for the marital deduction? Does distribution of assets from one trust to another trigger capital gains or other income tax consequences to the trust or its beneficiaries?<\/p>\n If you have tax-related questions, please contact us. We\u2019d be pleased to help you better understand the pros and cons of decanting a trust.<\/p>\n \u00a9 2026<\/em><\/p>\n <\/body> Irrevocable trusts provide various estate planning benefits, such as reducing estate taxes and helping to ensure assets are distributed as you wish. But estate planning isn\u2019t a \u201cset it and forget it\u201d process. Families, tax laws and financial circumstances can change. A major downside of irrevocable trusts is that they\u2019re difficult to update once they\u2019ve […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,9,10],"tags":[8,11,12],"class_list":["post-17477","post","type-post","status-publish","format-standard","hentry","category-articles","category-estates","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17477","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17477"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17477\/revisions"}],"predecessor-version":[{"id":17478,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17477\/revisions\/17478"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17477"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17477"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17477"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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