North Carolina Law on Irrevocable Living Trusts

By Wayne Thomas

In North Carolina, irrevocable living trusts can be established during a person's lifetime, often for estate planning purposes. In contrast to revocable trusts, irrevocable trusts typically may not be withdrawn or modified once they are created. However, North Carolina law provides some flexibility to this rule, usually when certain actions are necessary to fulfill the purpose of the trust or all persons affected by the trust consent to the action.

Overview of Trust

A trust is a legal entity in which assets are owned by the trust and managed by a designated person for the benefit of another. In North Carolina, the person creating the trust is referred to as the settlor, the person who manages the trust is the trustee, and the person who benefits from the assets of the trust is the beneficiary. A settlor creates the trust with a document called a trust instrument, trust deed or trust agreement. A settlor has wide discretion in establishing the rules of the trust, provided they do not violate the law. These rules should clearly spell out how the trustee should manage and distribute the assets to trust beneficiaries. It is the trustee's duty to follow the trust instrument and act in the best interest of the beneficiaries.


Although an irrevocable trust is typically not modifiable, a trustee has options available to him that may achieve the same result. One method allowed in North Carolina is known as decanting. Decanting involves transferring assets from the original trust to a new trust with more favorable terms to the beneficiaries. This action must support the settlor's intent and at least one of the original beneficiaries must also be a beneficiary under the new trust. Decanting is often used to improve outdated trust provisions, especially if there have been recent changes in the law. Another reason to decant is if there has been an unforeseen change in circumstances. An example might be if one beneficiary obtained great wealth and it was the settlor's intent to create a support trust. Here, decanting might be used to provide the beneficiaries in need with a greater distribution of property than under the original trust instrument.

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Unanimous Consent

The beneficiaries may also be able to modify or withdraw an irrevocable trust in North Carolina. One way is by unanimous consent, including the consent of the settlor. This generally does not require court approval, even if the modification or withdrawal conflicts with the intended purpose of the trust. For example, if a trust is created for the benefit of the settlor's niece for support through medical school, it could nonetheless be terminated while she is in medical school if she and the settlor consent.

Partial Consent

In North Carolina, the settlor's consent is not always necessary if all beneficiaries consent. However, if seeking a modification, it must be shown to the court that changing the trust is necessary to maintain its original purpose. If seeking to withdraw the trust, it must be shown that the original purpose has been achieved. Further, if one beneficiary does not consent, a modification or withdrawal may still be ordered, provided the trust could have been modified or withdrawn with the consent of all beneficiaries and any change will adequately protect the interests of the non-consenting beneficiary. In cases of withdrawal due to consent, the property is distributed in any manner agreed upon by the beneficiaries.

Other Grounds

An irrevocable trust may also be modified or terminated if the court determines that termination of the trust substantially outweighs the interest in achieving the purpose of the trust. An example might be if the trust was created to support the settlor's children until each obtains an education. If one child is purposefully avoiding going to school to continue receiving support, a judge may conclude that termination or modification is proper. A trust may also be terminated if it has less than $50,000 in assets. A modification may be ordered to achieve the settlor's intended tax objectives or correct a mistake or drafting error. In these cases, the property is distributed in a manner consistent with the purpose of the trust.

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