Tuesday, September 15, 2009

Estate Planning Tip of the Week

Can a Beneficiary also be a Trustee of a Trust?

A beneficiary may be a trustee of a trust, but depending on what the trust is intended to accomplish, you need to be very careful in deciding who the trustee should be.

Beneficiaries also fulfill the role of trustee in two common situations.  First, where the creator of a revocable living trust, also known as the settlor or grantor, is a beneficiary and also trustee of their revocable living trust until they die.  Second, if the deceased settlor drafted the trust to create beneficiary-controlled subtrusts upon the settlor’s death, the subtrusts will likely name the beneficiary as trustee for many purposes, but not others, such as distributing funds from the subtrust.

Naming a beneficiary as trustee has many implications that will impact federal and Vermont estate taxes, the degree of asset protection available, and, depending on the potential trustee’s abilities, whether the purposes of the trust are carried out.  Also, be aware that a person cannot be the sole trustee and sole beneficiary, but may be the only current trustee and beneficiary provided successor trustees and beneficiaries are named.

Who is named as trustee of the trust is a central question the trust settlor should not take lightly.  For more information on naming a trustee, see Choosing a Successor Trustee on the Articles Page.