Decant Your Irrevocable Trust And Save On Taxes

Irrevocable Trust Defined

As part of their estate planning process, some individuals decide they prefer to have an irrevocable trust rather than relying on more traditional methods of distributing their assets, such as a last will and testament or making use of a probate court. Instead, they transfer the ownership of various assets over to a trust, thereby removing any personal tax liability from these assets upon their death. The original owner, or grantor, does not retain any ownership rights of the assets placed into the trust, nor can they do any of the following without permission from their beneficiaries:

  • modify the trust,
  • amend the trust,
  • or terminate the trust.

Decanting an Irrevocable Trust

Decanting an irrevocable trust is essentially the act of "pouring" the assets from an old irrevocable trust into a new one. Not every state will allow an irrevocable trust to be decanted, so it is important to check with your particular state if you want to know if that option will be available to you at some point in the future.

Tax Benefits

Often irrevocable trusts are created by a couple in order to pass down as much value as they can from their assets. In many cases, there is often a substantial amount of time between the death of the spouses, thereby allowing some, or perhaps all of the assets in the trust to gain quite a bit in value. This value, known as "tax basis" at tax time, can have a significant impact on the amount of taxes due when the irrevocable trust is closed and disbursed upon the death of the second spouse. In order to avoid this situation, an irrevocable trust can be decanted or poured into a new trust, thereby allowing the beneficiaries of the original irrevocable trust to avoid additional income tax.

If you would like to know more about decanting an irrevocable trust or any of our other estate planning options including advance directives, guardianship planning, creating a conservatorship, spendthrift or charitable trusts, and more, please contact us!