North Carolina trusts are governed by the North Carolina Uniform Trust Code, Chapter 36C of the General Statutes, which took effect January 1, 2006. North Carolina did not adopt the uniform act word for word. It added its own rules on trustee reporting, trust protectors and other power holders, decanting, perpetuities, and court jurisdiction, and it gives the clerk of superior court a central role in trust disputes that most states assign to judges. Anyone creating, administering, or inheriting from a North Carolina trust benefits from knowing where those differences lie.
This page is the hub for North Carolina trust law. It covers how trusts are created, the main types of trusts, trustee duties, deadlines for contesting a trust, modification and decanting, spendthrift protection, the perpetuities rule, and how North Carolina taxes trust income. The individual trust pages go deeper: the NC revocable trust, NC irrevocable trusts, NC special needs trusts, and NC charitable trusts. Holmes Law is the remote practice of Michael J. Holmes, who is admitted in North Carolina.
How a Trust Is Created Under the North Carolina Trust Code
Under G.S. 36C-4-402, a trust is created only if the settlor has capacity, indicates an intention to create the trust, names a definite beneficiary (unless it is a charitable trust, a trust for the care of an animal, or another permitted noncharitable purpose trust), gives the trustee duties to perform, and the same person is not the sole trustee and sole beneficiary. Trusts may be created by transferring property to a trustee, by a declaration that the owner holds property as trustee, or by exercising a power of appointment.
Several North Carolina rules smooth the process:
- A trustee’s interest as beneficiary of a life insurance policy or employee benefit plan death benefit is enough property to support a trust, even while the insured keeps the right to change beneficiaries, under G.S. 36C-4-401.1.
- Pet trusts are authorized by G.S. 36C-4-408, and trusts for other noncharitable purposes by G.S. 36C-4-409.
- A trustee may give third parties a certification of trust under G.S. 36C-10-1013 instead of the full trust instrument, which protects privacy when dealing with banks and title companies.
Types of North Carolina Trusts
Most North Carolina trusts fall into a handful of categories:
- Revocable living trusts, used to manage assets during life and incapacity and to avoid probate at death. See NC revocable trust.
- Testamentary trusts, created under a will and funded through probate, often for minor children.
- Irrevocable trusts, used for life insurance, gifting, creditor planning, and Medicaid planning. See NC irrevocable trusts.
- Special needs (supplemental needs) trusts for beneficiaries who receive or may need SSI or Medicaid.
- Charitable trusts, including charitable remainder and charitable lead trusts.
- Spendthrift and discretionary trusts that protect beneficiaries from creditors and from their own decisions.
Revocable by Default
A significant and sometimes overlooked rule: under G.S. 36C-6-602(a), unless the terms of a trust expressly provide that it is irrevocable, the settlor may revoke or amend it. That default applies to trusts created under instruments executed on or after the Trust Code’s effective date. North Carolina therefore follows the Uniform Trust Code approach, rather than the older common law rule that a trust was irrevocable unless the settlor reserved a power to revoke.
A settlor may revoke or amend by following the method in the trust instrument or, if that method is not made exclusive, by a later will or codicil that expressly refers to the trust, or by any other written method delivered to the trustee that shows the settlor’s intent by clear and convincing evidence. The practical lesson is to draft the amendment method clearly and to follow it exactly.
Trustee Duties Under North Carolina Law
Article 8 of Chapter 36C sets out the trustee’s core duties. Among the most important:
- Duty of loyalty. Under G.S. 36C-8-802, the trustee must administer the trust solely in the interests of the beneficiaries. Self-dealing transactions are voidable by an affected beneficiary unless an exception applies.
- Prudent administration and investment. Article 9 of Chapter 36C contains North Carolina’s prudent investor rule, which is a default rule that the trust instrument can expand, restrict, or eliminate.
- Impartiality among beneficiaries, record-keeping, and separation of trust property from the trustee’s own assets.
- Duty to inform and report under G.S. 36C-8-813.
North Carolina’s duty to inform is narrower than the uniform act’s. Under G.S. 36C-8-813, a trustee must provide reasonably complete and accurate information about the trust property at reasonable intervals to qualified beneficiaries who are current distributees or permissible distributees. On reasonable request, the trustee must give any qualified beneficiary a copy of the trust instrument, information about trust property, and a reasonable opportunity to inspect trust records. A trustee who sends a report at least annually and at termination describing the property, liabilities, receipts, disbursements, and compensation is treated as having satisfied the periodic information duty. The statute does not require advance notice of transactions, and beneficiaries may waive reports. North Carolina did not adopt the uniform act’s requirement to notify beneficiaries within a fixed period after a trust becomes irrevocable, which gives trustees more flexibility but also means beneficiaries sometimes have to ask.
Trustee Compensation and Principal and Income Rules
Unless the trust instrument sets compensation, trustee fees in North Carolina are governed by Article 6 of Chapter 32 of the General Statutes, and the clerk of superior court has jurisdiction to review them. Many trust instruments set a fee schedule or refer to a corporate trustee’s published rates, which reduces the chance of disputes later.
Allocating receipts and expenses between income and principal matters whenever a trust has separate income and remainder beneficiaries, such as a trust that pays income to a surviving spouse for life with the remainder to children. North Carolina’s principal and income rules are in Chapter 37A, and a trustee may convert an income trust to a total return unitrust, or change the unitrust percentage, under G.S. 37A-1-104.3, with the clerk able to hear those matters. A unitrust approach can reduce the tension between beneficiaries who want income and those who want growth.
Who Decides North Carolina Trust Disputes
North Carolina routes many trust matters to the clerk of superior court. Under G.S. 36C-2-203, the clerk has original jurisdiction over proceedings concerning the internal affairs of trusts, including appointing and removing trustees, approving resignations, reviewing trustee fees and accounts, transferring a trust’s principal place of administration, and setting or excusing bond. The clerk may also decide questions of construction and administration, although any party may transfer that type of proceeding to superior court, and claims seeking damages for breach of trust or involving third parties are generally heard in superior court.
This clerk-centered system is unusual. In California, trust petitions go to the probate department of the superior court. In North Carolina, a beneficiary with a concern about accountings or a trustee who wants to resign will often start before the clerk, with appeal to a superior court judge.
Deadlines for Contesting a North Carolina Trust
A trust that was revocable at the settlor’s death can be contested only within the earlier of two periods under G.S. 36C-6-604: three years after the settlor’s death, or 120 days after the trustee sent the person a copy of the trust instrument and written notice, served under Rule 4 of the Rules of Civil Procedure, stating the trust’s existence, the trustee’s name and address, and the time allowed for bringing a contest.
The same statute protects a trustee who distributes after the settlor’s death unless the trustee knows of a pending contest, or a potential contestant has given written notice of a possible contest and files within 60 days. A beneficiary who receives a distribution from a trust later held invalid must return it.
North Carolina also allows a settlor to seek a judicial declaration during life that a revocable trust is valid. Article 4C of Chapter 36C, added in 2021, lets a North Carolina resident settlor petition the superior court, with interested persons served, for a declaration that the trust and its amendments are valid and enforceable. It is the trust counterpart to living probate of a will.
Modifying or Terminating an Irrevocable Trust
North Carolina offers several paths to change a trust that is no longer revocable:
- Consent. Under G.S. 36C-4-411, if the settlor and all beneficiaries consent, they may modify or terminate a noncharitable irrevocable trust without court approval, even if the change is inconsistent with a material purpose. The statute includes a procedure for appointing a guardian ad litem for minor, incompetent, unborn, or unknown beneficiaries.
- Unanticipated circumstances. G.S. 36C-4-412 allows a court to modify administrative or dispositive terms, or terminate the trust, when circumstances the settlor did not anticipate make the change further the trust’s purposes.
- Tax objectives. G.S. 36C-4-416 allows modification to achieve the settlor’s tax objectives, potentially with retroactive effect.
- Nonjudicial settlement agreements. Under G.S. 36C-1-111, interested persons may resolve many trust matters by binding agreement, such as approving a trustee’s accounting or directing a trustee to act.
Decanting and Power Holders
North Carolina replaced its earlier decanting statute with the North Carolina Uniform Trust Decanting Act, Article 8B of Chapter 36C, effective in 2017. Decanting lets a trustee with sufficient discretion distribute property from an existing trust to a new trust with updated terms, for example to add special needs provisions, extend a trust’s term, or change administrative provisions. G.S. 36C-8B-13 specifically addresses decanting for a beneficiary with a disability, allowing a special-needs fiduciary to move property into a trust that protects eligibility for government benefits.
North Carolina was also early to address trust protectors and similar roles. Article 8A of Chapter 36C governs “power holders,” people other than the trustee who have authority under the trust to direct investments, distributions, or other actions. The statute defines their duties and the trustee’s liability when following a power holder’s direction, which makes directed trusts workable in North Carolina.
Spendthrift Protection
Under G.S. 36C-5-502, a spendthrift provision is valid if it restrains both voluntary and involuntary transfer, and a clause stating that the interest is held subject to a “spendthrift trust” is sufficient. North Carolina’s exceptions are narrow. Under G.S. 36C-5-503, a beneficiary’s child who holds a judgment or order for support may obtain an order attaching distributions to or for the beneficiary. Discretionary trust interests and protective trust interests are also protected under G.S. 36C-5-504 and 36C-5-508.
Spendthrift protection is not available for a settlor’s own interest. Under G.S. 36C-5-505, a revocable trust is reachable by the settlor’s creditors during life, and a creditor of the settlor of an irrevocable trust may reach the maximum amount that can be distributed for the settlor’s benefit. North Carolina does not authorize self-settled asset protection trusts, a point covered on the NC irrevocable trusts page.
Perpetuities: Long-Term and Dynasty Trusts
North Carolina’s rule for trusts is in G.S. 41-23. A trust is void if it suspends the power of alienation of trust property longer than lives in being plus 21 years. But the statute also provides that there is no suspension of the power of alienation if the trustee has a power to sell, express or implied, or if a living person holds an unlimited power to terminate the trust. Because nearly every modern trust gives the trustee a power of sale, a properly drafted North Carolina trust can last indefinitely. Charitable trusts are expressly excluded from the rule.
How North Carolina Taxes Trust Income
North Carolina has no estate tax, inheritance tax, or gift tax. It does tax trust income. Under G.S. 105-160.2, the state taxes the taxable income of an estate or trust that is for the benefit of a North Carolina resident, and income of a trust for a nonresident to the extent it comes from North Carolina real or tangible property or a North Carolina business.
The resident-beneficiary basis was limited by the U.S. Supreme Court in North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (2019). The Court held that North Carolina could not tax undistributed income of a trust based solely on the in-state residence of beneficiaries who had no right to demand distributions and no certainty of receiving them. Trust residence and distribution provisions therefore matter for North Carolina income tax. Revocable trusts are grantor trusts, taxed to the settlor, so these rules come into play mainly for irrevocable non-grantor trusts.
Frequently Asked Questions
Is a North Carolina trust revocable if it does not say?
Yes, for trusts created under instruments executed after the Trust Code took effect. G.S. 36C-6-602(a) makes a trust revocable unless its terms expressly say it is irrevocable.
Does a North Carolina trustee have to give beneficiaries a copy of the trust?
On reasonable request, yes. Under G.S. 36C-8-813, a trustee must provide a copy of the trust instrument to any qualified beneficiary who reasonably requests it, along with information about the trust property.
How long do I have to contest a trust in North Carolina?
For a trust that was revocable at death, the earlier of three years after the settlor’s death or 120 days after the trustee sends a copy of the trust and proper notice under G.S. 36C-6-604.
Can a North Carolina trust last forever?
Effectively, yes. Under G.S. 41-23, there is no suspension of the power of alienation when the trustee has a power to sell, so a trust with that power can continue for many generations.
Where are trust disputes heard in North Carolina?
Many internal trust matters begin before the clerk of superior court under G.S. 36C-2-203, with appeal to a superior court judge. Breach of trust claims and matters involving third parties are generally heard in superior court.
Does North Carolina tax trust income?
Yes, for income benefiting North Carolina residents and for North Carolina-source income of nonresident beneficiaries, under G.S. 105-160.2, subject to the constitutional limit recognized in the Kaestner decision.
Speak With a North Carolina Trusts Attorney
The North Carolina Trust Code gives settlors a great deal of flexibility, from perpetual trusts to power holders and decanting, but that flexibility rewards careful drafting. Michael Holmes prepares and reviews North Carolina trusts for clients statewide through a remote practice, and advises trustees on their duties under Chapter 36C. To discuss your plan, contact Holmes Law for North Carolina, or read more on the North Carolina estate planning page.