Every trust will have at least three roles connected to it: 1) the settlor or grantor of the trust who funds the trust; 2) the beneficiaries of the trust who receive the benefit of the trust; and 3) the trustee who manages the trust property for the benefit of the beneficiaries.
That said, there is no requirement that these all be separate people. In fact, the same person who acts as settlor of the trust in funding it can also act as the trustee for the trust as well as be the beneficiary of the trust. Putting aside the issues related with being a beneficiary of the trust, this article will talk about a few of the issues to think about related to being the trustee of your own trust.
The Trustee Does Receive Compensation
One primary reason a person might act as his or her own trustee is the fact that, as would be expected, a trustee will expect compensation for undertaking the work of managing the trust as well as taking on the legal risk that comes with it.
That said, a trustee, especially one who does not have a background in finance, might employ the services of a financial services professional to do much of this work. Point being, you might save trust assets by not hiring an outside trustee but this may be offset by the need to hire a financial professional to actually do the financial work associated with the trust.
The Trustee Must Follow the Terms of the Trust
The trustee has only as much discretion to manage trust property as is provided for in the trust legal documents themselves. A grantor can give that trustee wide discretion to manage funds and distribute them to beneficiaries or may prescribe very narrow parameters, which must be followed and are in enforceable in court. Thus, it is important to understand that a person who seeks to create a trust can order exactly how the trust should be administered without having to act as the trustee himself.
The Trustee Has Legal Obligations to the Beneficiaries
If the trustee does not follow the terms of the trust or otherwise violates applicable state law on trusts, that trustee could find himself at the receiving end of legal action by the beneficiaries of the trust, even if the trustee was the one who funded the trust for the gratuitous benefit of those beneficiaries. This is not as big of a concern if the grantor is also the beneficiary of the trust, but fiduciary duties and other legal obligations should be kept in mind when thinking about whether to act as trustee of a trust one has established.
Revocable and Irrevocable Trusts
Also keep in mind that there are both revocable and irrevocable trusts; as the names suggest, a grantor can revoke a revocable trust but cannot revoke an irrevocable trust. A primary benefit of an irrevocable trust is that it can provide the grantor with protection from creditors as well as tax relief, as the law sees that trust property as having permanently left the possession of the grantor. But if the grantor also acts as the trustee of an irrevocable trust with discretion on how the property should be used, legal questions may be raised about the effectiveness of these protections.
Update Your Estate Planning With a Pasadena Estate Planning Attorney
Estate planning and probate attorney Christopher B. Johnson, located in Pasadena, California, has years of experience in all aspects of estate planning, and works with clients from all walks of life to create estate planning tools that reflect their needs and those of their beneficiaries. To request an immediate consultation, contact him today at (877) 755-9178.