As your estate wealth and your family grow, you will likely incorporate a variety of estate planning tools and strategies into your existing estate plan. One of the most common of those is a trust. If you do decide to add a trust to your estate plan, you will need to appoint a Trustee for that trust. A common question people have when creating a trust is whether they can appoint themselves to be the Trustee of that trust. To help answer that question, the Los Angeles trust attorneys at Schomer Law Group, APC discussing appointing yourself as the Trustee of the trust you establish.
Trust Basics
To understand when and why you might appoint yourself as the Trustee of your own trust, you need a basic understanding of trusts. A trust is a fiduciary arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason unless a court grants the right to revoke or modify the trust.
The Significance of Establishing a Revocable vs. Irrevocable Trust
The Settlor of a revocable trust can revoke the trust at any time and for any reason, or without providing a reason at all. The Settlor can also modify the terms of the trust, replace the Trustee, or add and delete beneficiaries from the trust. More importantly for purposes of appointing yourself as Trustee, assets can easily be added or removed from a revocable living trust by the Settlor. As a result, a revocable living trust is not a good choice if asset protection is your goal. The ease with which assets can be transferred into and out of a revocable living trust has a direct impact on how the law views those assets. When assets are held in an irrevocable living trust they are legally considered to be owned by the trust. Consequently, they are usually out of the reach of creditors, a bankruptcy trustee, or a spouse in a divorce. Assets held in a revocable living trust, however, are fair game because the Settlor can easily transfer them back into his/her name at any time.
Can You – and Should You – Appoint Yourself as the Trustee?
From a legal standpoint, you can appoint yourself as the Trustee of any trust you create, whether it is a revocable or irrevocable trust. Appointing yourself as the Trustee of a revocable living trust is often advantageous to the trust purpose. For instance, if incapacity planning is your goal, you need to appoint yourself as the Trustee as well as appoint someone you wish to take over control of your assets during your incapacity as the successor Trustee. Once the trust has been established you transfer all major assets into the trust. If you are capable, you control and manage those assets as the Trustee of the trust. If you become incapacitated, your designated successor Trustee takes over management of the trust assets until you can resume as the Trustee. Because the trust is a revocable trust, you are also able to modify the trust easily as well as move assets in and out of the trust with ease.
On the other hand, appointing yourself as the Trustee of an irrevocable trust in which you are also the Settlor, however, would almost always defeat the purpose of making the trust irrevocable. Making a trust irrevocable protects the assets held in the trust from threats by creditors and other third parties. If you are the Trustee though, you continue to control those assets so the protection typically afforded assets held in an irrevocable living trust would disappear.
Contact Los Angeles Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about appointing yourself as the Trustee of a trust you establish, contact the experienced Los Angeles trust attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.
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