Trusts are the perfect vehicle for creating a legacy for your family’s future. A properly drawn-up trust can help individuals and couples avoid taxes, pay less for long-term care, avoid Medicaid recovery, skip probate and administrative court costs, and control inheritance distribution. Trusts are a proven asset strategy, but a trust’s terms can seem complex. Let’s look at the roles of Trustor vs Trustee in a legacy planning trust.
Roles in a Trust
When you create and fund a trust, you are the “Trustor”. However, this is an old term. Instead, the person who creates the trust is usually called the “Grantor”. A grantor generally discusses future goals and draws up the type of trust that suits their long-term plans while working with an experienced legacy and asset planning attorney.
Once the trust documents are active, the grantor funds the trust with assets. Without funding, a trust is useless. The purpose of a trust is to benefit beneficiaries. Without assets, a trust cannot complete its purpose.
The grantor chooses the trustee. Often, the grantor chooses a bank or other responsible institution as the trustee. A trustee’s job is to maintain the trust according to the trust terms drawn up in the trust agreement documents. Trustees have a fiduciary responsibility to the beneficiaries of a trust.
Once the grantor places assets into the legal trust framework, the trust is active, and the trustee begins their role as the protector and distributor of the trust.
Can the Same Person Be Trustor, Trustee, and Beneficiary?
There are two basic types of trusts in the US: revocable living trusts and irrevocable trusts. Each has different benefits and drawbacks. With a revocable trust, individuals may name themselves as the grantor, trustee, and beneficiary while alive.
After death, if you have written a pour-over will, the assets you did not yet place into the trust automatically flow into the trust. At your death, your trust then owns all of your assets.
A living revocable trust with a pour-over will avoids probate court for an estate. Probate court is a very public process that allows anyone and everyone to see what you owned and what you owed. They can also easily find out who will inherit what. Often, creditors take advantage of estates that pass through public probate, creating false claims. The public nature of this process can also lead to family disputes about inheritance.
With a living trust, your assets do not go through probate. Instead, they pass to your heirs through the distributions of the trustee. At your death, a successor trustee replaces you as the trustee. As the grantor, you name this successor trustee in your initial trust documents. At your death, this successor trustee inventories your estate and distributes your assets to your heirs without court involvement.
The trustee role for a revocable living trust is much like an executor or administrator of an estate. However, a trustee does not answer to a court for inventories, inheritance distribution, or tax filings. Your estate may pay court or attorney fees and face court involvement and interference without a trust. A trust can save your estate money.
Can I Be the Trustee of “My” Irrevocable Trust?
In an irrevocable trust type of framework, the grantor may also be a beneficiary or a trustee. However, the point of an irrevocable trust is to protect your estate from entities such as the IRS, Medicaid Recovery, bankruptcy, or other creditors. An irrevocable trust can also help you and other beneficiaries qualify for government benefits for long-term care, special needs benefits, SSD, and SSI.
The point of an irrevocable trust is that the assets are no longer in your hands. Once the trust is in effect, the trustee has a fiduciary interest to carry out the terms of the trust regardless of the beneficiaries’ desires. The terms of the trust may use the assets for your benefit. However, the terms of an irrevocable trust are not easily changed, and you cannot remove assets as you choose. This lack of control creates distance.
The Problem With Acting as Trustee
In an irrevocable trust, there is a problem with acting as a trustee (or giving yourself the possibility of becoming the trustee). The problem is that you retain power over the assets of the trust. If you act as the trustee, courts may rule that you have power and discretion over the trust’s assets.
To distance yourself from the assets, don’t act as a trustee of your own irrevocable trust. The distance created gives you opportunities to shield yourself from ownership of the assets. It also protects your assets from any creditors you or other beneficiaries or family members may acquire.
Acting as your own trustee in an irrevocable trust can destroy the very reasons you created the trust in the first place. Talk with your asset protection and legacy planning attorney to learn more about how irrevocable trusts can help you meet your long-term goals.
We Can Help
If you have long-term goals to protect your assets from creditors, avoid probate, qualify for long-term care benefits, or avoid family situations that cause strife, talk with us at Vail Gardner Law. We work with you to create trust structures suited to your needs. Our attention to current laws and regulations keeps us abreast of the best ways to protect and maximize your assets. Contact us today and find out how we can help you and your family see a bright future ahead.