In this situation, one person is all three parties—they are the settlor, the trustee, and the beneficiary. Continuity of authority is essential with real estate ownership. A beneficiary serving as trustee may run afoul of the tax protections offered by a trust, and some states do not allow a sole-beneficiary to serve as trustee. When only one party is involved (the grantor, trustee, and sole beneficiary are the same person), the trust is not recognized for tax purposes. These rules help to ensure that the trust will be created and managed in a way that protects the interests of the beneficiaries. sole trustee was also named as a beneficiary since the trust would effectively be passive, and the trustee would have no duties to carry out.6 Title of the same nature and for the same duration as the intended trust vested in the T/B.7 Provided that the trustee was not the sole trustee, a trustee could, however, also be a beneficiary. Does an IRS Tax Lien Attach to Irrevocable Trust? Please see our article for more information on discretionary trusts. The same principle also requires a beneficiary to be a different person from the trustee. A trust beneficiary can be a person, a company or the trustee of another trust. on estate planning and nonprofit law, (515) 371-6077 Beneficiaries may have an entitlement to trust income or capital that is set out in the trust deed or they may acquire an entitlement because the trustee exercises a discretion to pay them income or capital. If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. Both trustees and beneficiaries can be individuals, businesses or charities and need to be familiar with the trust. When there is only one individual trustee and the same person is the sole beneficiary of the trust, this will be an invalid trust. But in some types of trusts, a trustee cannot be a beneficiary. A sole beneficiary and a sole trustee should never be the same person as this creates a merger of legal and equitable title and collapses the trust. A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities. The sole beneficiary is the entity designated to receive all of the assets associated with something. The reason is that a person cannot hold an asset on trust for his/her own benefit. It is almost never too late for asset protection. In some cases there may be just one trustee and one beneficiary but the sole trustee cannot be the sole beneficiary or else there is no trust relationship. The settlor may also be a trustee (but not the sole trustee) and they may also be a beneficiary. The agreement identifies the person who manages the assets, referred to as the trustee, and may name one or more successors to act if the first-named individual dies, becomes incapacitated, or resigns. Do You Have to Live in Florida to Claim Head of Household Wage Garnishment Exemption? As such, the interests in the trust merge and it is owned by the beneficiary and the trust no longer exists. Guardian The Guardian cannot benefit from the Trust unless they are a Specified Beneficiary. In such a situation, a company can act as a trustee with a sole director and that same person can be the sole beneficiary of the trust. (5) The same person is not the sole trustee and sole beneficiary. Yes, it is possible for the same person to be appointed as both Executor and Trustee. Can the same person be the settlor, a trustee and a beneficiary? These individuals are known n as the the beneficiaries. (c) A power in a trustee to select a beneficiary from an indefinite class is valid. Conclusion. After all, there are only three parties to a trust. Call (407) 444-0404.Schedule a consultation online.Or submit the form below. A trustee controls and distributes the assets of a trust, but it is the beneficiary who receives those assets, as per the terms of the trust. Settlor When the trustee both manages the property and receives the benefit of it, what exactly is the difference between this and owning the property outright? C. A power in a trustee to select a beneficiary … The same person is not the sole trustee and sole beneficiary. Under the doctrine of merger, if the sole trustee and the sole beneficiary are occupied by the same person, there is no division of property interests between legal and equitable title. Therefore, a trustee can only be the beneficiary of a trust if there is more than one trustee or one beneficiary. Therefore, this would make the trust legally invalid because the two types of title have “merged”. The general rule is that when a single person is the sole trustee and sole beneficiary of a trust, the interests merge and the trust fails. (b) A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities. The law says that no trust can exist in these circumstances." When the trustees are appointed they agree to act in the interests of the beneficiaries and not themselves. Many trusts have the same people fulfilling multiple roles. Beneficiary as Sole Trustee. But, in most estate planning living trust agreements established for married trustmakers provide that upon the first spouse’s death the trust assets are held in a trust for the surviving spouse and the surviving spouse is trustee of their own trust. There is one limitation to the rule of one person wearing multiple hats. Note that even an irrevocable trust may be considered revocable if the transferor and sole trustee are the same person. One person can play multiple roles. How to Open a Tenants by Entireties Account at a Florida Bank. For example, suppose a client wanted to serve as trustee of an irrevocable trust created for his benefit. Otherwise, the person will be the absolute owner if he holds both the full legal and equitable interest in the trust property. Your email address will not be published. There is no legal reason why the same person cannot be appointed in two or more of these roles, but it's important that they are clear on the specific duties and responsibilities of each. These agreements also identify who has rights to receive distributions. Question: Can a trustee be a sole beneficiary to a trust? The trustee is the beneficiary. In that case, the Trust Property would no longer be held on trust. In that case, the initial beneficiary does not hold the complete present and future beneficial interest and the doctrine of merger does not apply. Other Definitions. (407) 444-0404 — Schedule a consultation. In the law of trusts the term "doctrine of merger" refers to the fusing of legal and equitable title in the event the same person becomes both the sole trustee and the sole beneficiary of a trust. If you are named as the sole beneficiary, you are entitled to all of the benefits that pass to you in such documents. Depending on the terms of the trust and other circumstances, the trust may still be able to achieve certain tax objectives and provide protection from the claims of creditors. The trustee has specific duties to perform; and; The same person cannot be the sole trustee and sole beneficiary. (Quoting Bogert at 450.) However, because the assets taken by the trustee were meant to be split, a breach could still occur. A beneficiary serving as trustee may run afoul of the tax protections offered by a trust, and some states do not allow a sole-beneficiary to serve as trustee. They are also required to consider every beneficiary equally and impartially. Justice French considered that if a person is one of the open class of beneficiaries and that person also has the power to remove or appoint new trustees, then that person has a contingent interest in the property of the trust. In fact, this is not uncommon. What is “doctrine of merger”? The Beneficiaries. When Can a Trustee be a Beneficiary The most common situation where a trustee is also a beneficiary to the trust occurs when someone names their spouse or oldest child as the trustee to the trust. Funding and Administering Your Living Trust. Our firm helps businesses and individuals with customized asset protection planning and implementation. (the beneficiaries). The agreement identifies the person who manages the assets, referred to as the trustee, and may name one or more successors to act if the first-named individual dies, becomes incapacitated, or resigns. When the Beneficiary and Trustee are the Same Person. The eCompanies trust deed however, allows for a number of people related to the the primary beneficiary to also be named by the trustee to receive benefits. But, in almost all situations, one person isn’t the sole beneficiary. Gordon is based in Cedar Rapids and serves clients all across Iowa, News, notes, and points-of-view In practical terms, however, merger is rarely an issue. §59-12-07 -- Trust agreements can be oral. A trust is created when a property owner transfers the property to a person with the intent that the recipient holds the property for the benefit of someone else. So, one person can indeed wear three hats. It helps to understand the roles of the executor and the successor trustee in your estate plan as you make a decision because some of the factors can be personal. Consequently, the trust is terminated and the trustee-beneficiary will … If two individuals are trustees, one or both can be the Appointors. sole trustee was also named as a beneficiary since the trust would effectively be passive, and the trustee would have no duties to carry out.6 Title of the same nature and for the same duration as the intended trust vested in the T/B.7 Provided that the trustee was not the sole trustee, a trustee could, however, also be a beneficiary. The trustee is the beneficiary. The foregoing advantages will continue to apply even if the beneficiary is named as the sole trustee of his or her lifetime trust. The same person can generally serve as both estate executor and trustee so long as the appointed individual meets the independent legal capacity requirements to act as an executor and as trustee. In the law of trusts the term "doctrine of merger" refers to the fusing of legal and equitable title in the event the same person becomes both the sole trustee and the sole beneficiary of a trust. Can a Land Trust Beneficiary Be Sued in Florida? Assets that the grantor transfers to the trust that become the body or principal of the trust. The Uniform Trust Code (2003) provides that a trust is created only if “the same person is not sole trustee and sole beneficiary.” A trust is a legal entity that holds property for the benefit of others and managed by a trustee.The property rights are bifurcated: the trustee holds legal title to the property while the beneficiaries of the trust hold equitable title.. Will there be a legal challenge? The same person can act as both settlor and trustee of your trust. Yes, in this situation one person is all three parties—the settlor, the trustee, and the beneficiary. These individuals are known n as the the beneficiaries. One needs to understand the legal definition under Michigan law is construed as all beneficiaries including the settlor as the beneficiary and ultimate beneficiaries. In fact, appointing the same individual to both positions is a fairly common estate planning technique. In this particular case, the client’s wife proposed to create an irrevocable trust for the benefit of the client husband. The eCompanies trust deed however, allows for a number of people related to the the primary beneficiary to also be named by the trustee to receive benefits. In such a situation, a company can act as a trustee with a sole director and that same person can be the sole beneficiary of the trust. It is permissible for the Trustee to also be a Beneficiary so long as the Trustee is not the only beneficiary as, otherwise, both the legal and beneficial ownership would vest in the same person. The foregoing advantages will continue to apply even if the beneficiary is named as the sole trustee of his or her lifetime trust. A trust really isn’t as complicated as it first may seem. As executor or trustee a person has a legal duty to manage the property in the decedent’s estate for the benefit of the trust or estate beneficiaries. Appointing a third-party executor in the first place may diffuse accusations of bias or misconduct from other beneficiaries. The trust can only exist if it has property, since if it holds no property, it serves no purpose. A trustee of a discretionary trust must not choose themselves as a beneficiary or grant themselves any benefit for a personal reason to gain profit. The doctrine of merger means that if a single person is simultaneously the trustee and the person holding the complete beneficial interest that the trustee’s legal title and the beneficiary’s equitable merge into a single interest and the trust relationship dissolves and becomes moot. In everyday usage, a beneficiary is the designated recipient of benefits specified in a legal document, such as wills, trusts, pension plans and insurance policies. The duties include the duty to act impartially and gratuitously when exercising the discretionary power of the trustee. The trust can only exist if it has property, since if it holds no property, it serves no purpose. I offer a free one-hour consultation to everyone, without any obligation. If true, then the majority of living trust based estate plans would be questionable because the same people initially serve as trustee and beneficiaries of their own living trusts. For For example, in a typical revocable inter vivos trust, it is quite common for the person establishing the trust to be the initial trustee and the principal beneficiary. Note that even an irrevocable trust may be considered revocable if the transferor and sole trustee are the same person. These rules help to ensure that the trust will be created and managed in a way that protects the interests of the beneficiaries. Appointor The Appointors role is to appoint and dismiss the trustee. When the trustee and the sole beneficiary of the trust are the same person or institution. Yes, a trustee can be the sole beneficiary under certain circumstances. Conclusion. Depending on the terms of the trust and other circumstances, the trust may still be able to achieve certain tax objectives and provide protection from the claims of creditors. Beneficiary as Sole Trustee. Email me at gordon@gordonfischerlawfirm.com. Your email address will not be published. gordon@gordonfischerlawfirm.com, https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/08/charles-deluvio-271640-e1502532277316.jpg, https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.png, Three Parties to a Trust & the Doctrine of Merger, Copyright © 2018 | Gordon Fischer Law Firm | Website developed by, Happy Mother’s Day! We'll review your legal situation and your assets and then develop a plan to protect those assets from creditors. Trusts aren’t that difficult to understand and also can be an effective estate planning tool to meet your wealth transmission goals. For example, a husband may create a trust with the intent of … Often, the settlor and the trustee is the same person, and sometimes that person is also the beneficiary!However, the settlor cannot be the sole beneficiary—otherwise the trust would serve no purpose. Want to learn more? Yes, in this situation one person is all three parties—the settlor, the trustee, and the beneficiary. Non-charitable trusts require: (1) a settlor with capacity, (2) intent to create a trust, (3) a definite beneficiary, (4) duties for the trustee, and (5) that there is not a sole trustee and sole beneficiary who are the same person. In such an event, it is said merger occurs, and the trust is terminated. The reason for this is that, as sole trustee, the transferor may have the ability to control the trust assets and to determine how they are distributed, depending on the terms of the trust. The settlor (aka grantor, trustor) creates the trust. Often, the settlor and the trustee is the same person, and sometimes that person is also the beneficiary!However, the settlor cannot be the sole beneficiary—otherwise the trust would serve no purpose. That interest, may amount to 'property' for … Trusts have 4 components: settlor, trustee, beneficiaries, and property. The reason is that a person cannot hold an asset on trust for his/her own benefit. (B) A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities. While this is not always prudent planning, this will give the beneficiary much more control over the assets while not giving up the advantages of a trust. But, in almost all situations, one person isn’t the sole beneficiary. This means that while the executor/trustee should be compassionate, he or she must act in an equal and unemotional manner toward ALL the beneficiaries. Answer: No, and such an arrangement would invalidate a trust. Note that although a trust involves three parties, it does not require three persons. Without an account the beneficiary must be in the dark as to whether there has been a breach of trust and so is prevented as a practical manner from holding the trustee liable for a breach. Re: Settlor – Trustee – Beneficiary the same persons Post by AnthonyR » Sat Apr 29, 2017 8:19 am As Andrew says, the settlor should not benefit and should not be included in a list of beneficiaries (or if included in a class of beneficiaries they should be specifically excluded). The main rule is that the one person CANT be the Appointor and trustee. The reason for this is that, as sole trustee, the transferor may have the ability to control the trust assets and to determine how they are distributed, depending on the terms of the trust. When a trust agreement shifts the beneficial interest to successor beneficiaries upon the initial beneficiary’s death (such as, to the children after the death of the surviving spouse) there are other individuals with a future and contingent beneficial interest. There are ways to draft around that result, but it requires a sophisticated understanding of trust powers and vesting of successive, contingent interests. When the trustee both manages the property and receives the benefit of it, what exactly is the difference between this and owning the property outright? To keep the same benefit / setup as the old Trust, the Trustees and Beneficiaries of the New Trust would be the same as the old Trust, but this time, they would ALSO be the settlor. For a more complete discussion of this topic you may read this Florida case. N.D.C.C. “Wait!” you shout. 4. I don’t think there is any law prohibiting the Trustee, Settlor and Beneficiary from being the same person, but (1) could this cause an issue? The essence of a trust is that it divides legal title from beneficial ownership, and merger ends this division. In that case, the Trust Property would no longer be held on trust. It is therefore clear that there could not only be one trustee and one beneficiary, who is the same person, as the principle makes it clear that the beneficiary has to be a third party. Such a trust will designate other beneficiaries who will benefit from the property after … Sole trustee and beneficiary . Law defines a trust as an agreement under which title to some asset is split (by the grantor) into a management component (given to the trustee) and a benefit component (given to the beneficiary). Yes, a trustee can be the sole beneficiary under certain circumstances. The trustee may also be a beneficiary, but not the sole beneficiary unless there is more than one trustee. But whether they should be the same individual can depend on several factors. The same person can act as both settlor and trustee … Under ancient common law principles, a trust could not exist unless there was at least some "title split" – that is, the same person cannot generally hold all legal and all equitable title at the same … The trust agreement would provide that upon the client’s ( husband’s) death any property remaining in the trust being both trustee and beneficiary. In years past, businesses formed business trusts because such trusts were less regulated than corporations. So, there are three parties to a trust: (1) the owner who transfers the property (the settlor, or sometimes called the donor or grantor); (2) the person receiving the property (the trustee); and (3) the person for whose benefit the property is being held (the beneficiary). remaining trustee can always certify the resignation or removal of a prior trustee and the appointment of a successor trustee. Your executor and successor trustee can usually be the same person, and it's actually a quite common arrangement. If one person is to be the sole beneficiary and sole trustee then the trust is invalid, as a person cannot hold an asset on trust for their own benefit. I am the sole Trustee … Trusts are an effective instrument to hold and manage property when there are many owners or beneficiaries, because it is managed by the trustee for the benefit of the stakeholders. Even in the closet families, beneficiary disputes can occur if a trustee is also a beneficiary. These agreements also identify who has rights to receive distributions. I’d be happy to talk to you at any time. Would the executor be the trustee of his own trust? Offshore Trust — Foreign Asset Protection Guide. But if the trust goes on to say that after Joe’s death Joan becomes both trustee and sole beneficiary, there is merger. Firstly, the settlor cannot be the only trustee. Any individual may be a trustee and a beneficiary of a trust assuming that the trust agreement names other lifetime beneficiaries or successor beneficiaries after the death of the initial beneficiaries. Sign up to get our latest asset protection posts by email. Potential beneficiaries of a discretionary trust do … You just said that in a typical revocable inter vivos trust, the person establishing the trust can be trustee and beneficiary. Lisa practises in the areas of business and commercial law, intellectual property and contract law. For While this is not always prudent planning, this will give the beneficiary much more control over the assets while not giving up the advantages of a trust. (5) the same person is not the sole trustee and sole beneficiary. Sometimes, interests can conflict. Firstly, the settlor cannot be the only trustee. In other words, if the trust is created with a sole beneficiary as trustee, it is void and the settlor retains title to the property. If one person is to be the sole beneficiary and sole trustee then the trust is invalid, as a person cannot hold an asset on trust for their own benefit. The doctrine of merger means that if a single person is simultaneously the trustee and the person holding the complete beneficial interest that the trustee’s legal title and the beneficiary’s equitable merge into a single interest and the trust relationship dissolves and becomes moot. The court in Groeschke v Trustee, Groeschke Family Trust and Others 2013 (3) SA 254 (GSJ) had to decide, amongst other things, whether it is possible for a sole trustee of a trust to become the sole beneficiary at the same time. Assets that the grantor transfers to the trust that become the body or principal of the trust. If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. Non-charitable trusts require: (1) a settlor with capacity, (2) intent to create a trust, (3) a definite beneficiary, (4) duties for the trustee, and (5) that there is not a sole trustee and sole beneficiary who are the same person. Yes, a trustee can also be a beneficiary, and they often are. You can’t have the trustee and Appointor as the same person. Finally, the UTC requires that a trust must not have the same person as the sole trustee and sole beneficiary. In this scenario, each beneficiary could receive the same monetary value of assets. In such a case, the trust is sometimes deemed to have terminated (with the result that the beneficiary owns the trust property outright). (C) A power in a trustee or other person to select a beneficiary from an indefinite class is valid. If you have two Appointors, one or both of them can be the trustees. In a typical  trust agreement, the trustee holds legal title to trust property and the beneficiary holds equitable rights in trust property. Call (407) 444-0404 or schedule a consultation online. Though not the case in most instances, there are times when a trust’s beneficiary is also named the It is permissible for the Trustee to also be a Beneficiary so long as the Trustee is not the only beneficiary as, otherwise, both the legal and beneficial ownership would vest in the same person. The trustee has duties to perform; and 5. If the trust is initially valid, but circumstances change such that the trustee becomes the sole beneficiary, the trust terminates automatically and the beneficiary then holds legal title to the property. In such a case, the trust is sometimes deemed to have terminated (with the result that the beneficiary owns the trust property outright). Does the typical marital trust for the surviving spouse fail because of the doctrine of merger when the surviving spouse is beneficiary and trustee of the marital trust? I am the sole Trustee … Give Your Mom a Gift That Lasts a Lifetime. You can designate any person or organization as your sole beneficiary. We serve clients throughout Florida with phone, Zoom, and office appointments. Such a trust will designate other beneficiaries who will benefit from the property after the settlor’s death. Secondly, neither the settlor nor trustee can be a beneficiary of the trust. A beneficiary is a person for whose benefit the trustee holds trust property. When only one party is involved (the grantor, trustee, and sole beneficiary are the same person), the trust is not recognized for tax purposes. How must the trustees act? Answered by Lisa Lee. Required fields are marked *. B. Secondly, neither the settlor nor trustee can be a beneficiary of the trust. Under this doctrine the trustmaker, or settlor, cannot serve as trustee and be a trust beneficiary because  his interests as trustee and beneficiary would “merge” and the trust would not be a legal  entity that is distinguished from the trustmaker individually. Trustee If one individual is a trustee, that one individual cannot be the only Appointor. [4] the trustee has duties to perform; and [5] the same person is not the sole trustee and sole beneficiary. The answer is that the doctrine of merger applies only where the trustee also owns the complete present and future beneficial interest in trust property. "The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries. You can’t have the trustee and Appointor as the same person… You can have more than one Appointor. Relevant terms for trust and estate taxation. Relevant terms for trust and estate taxation. An executor inclined to privacy may cause distrust among beneficiaries looking for updates on the progress of estate distributions. The grantor is the person who owns the assets prior to creation of the trust, and who working with legal counsel sets out the terms and conditions of the trust. Beneficiary Disputes. Corpus. Where the sole trustee and sole beneficiary are the same person, there is a merger of legal and equitable title. The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries. What control does the … Other Definitions. The client’s general attorney cautioned him that he could not serve simultaneously as a beneficiary and as a trustee, and that if he did occupy both positions the trust would automatically dissolve because of the legal “doctrine of merger.”. Why so? The same person cannot be the sole trustee and the sole beneficiary of the trust. Corpus.