+ Reply to Thread
Page 1 of 2 12 LastLast
Results 1 to 15 of 17
  1. #1
    MichaelQuestion is offline Junior Member
    Join Date
    Jun 2011
    Posts
    3

    Irrevocable Trusts

    What is the name of your state (New York)?

    In an irrevocable trust, can the trustee and the beneficiary be the same person?

    Also, can the trustee and the grantor be related?

    Any help is appreciated.

    Thank you,
    Mike
  2. #2
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    If the trustee and beneficiary are the exact same person, the trust is often said to merge. Without more, you cannot have the same person be the trustee and the beneficiary in an irrevocable trust.

    Besides, jargon makes a difference. There are many reasons why an irrevocable trust is set up and the rules differ depending on the trust's goals. What is the goal of the trust? Even if you found a situation where you could have the same person, most potential goals of the trust are defeated by the set-up.

    The grantor can make anyone he wants be the trustee. Certain goals cannot be accomplished with certain trustees or beneficiaries.
  3. #3
    curb1 is offline Senior Member
    Join Date
    Mar 2002
    Location
    oregon
    Posts
    2,061
    Tranquility, I searching for information here.

    You said, "If the trustee and beneficiary are the exact same person, the trust is often said to merge. Without more, you cannot have the same person be the trustee and the beneficiary in an irrevocable trust."

    When a revocable trust becomes irrevocable upon death of the grantor, it is very common for the trustee (formerly the successor trustee) and the beneficiary to be the same person. Can you explain more of what you meant? I am not understanding your statement.
  4. #4
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    [url=http://en.wikipedia.org/wiki/Merger_doctrine_%28trust_law%29]Merger doctrine (trust law) - Wikipedia, the free encyclopedia[/url]

    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. In such a case, the trust is sometimes deemed to have terminated (with the result that the beneficiary owns the trust property outright).[1]
    From [url]http://www.aaepa.com/documents/0306_EPJournal_AssetProtection_DS.rtf:[/url]

    Doctrine of merger
    In drafting a trust for spendthrift protection, a prudent estate planner should be concerned about the doctrine of merger. Section 341(1) of the Restatement (Second) of Trusts (Restatement (Second)) provides that "[e]xcept as stated in Subsection (2), if the legal title to the trust property and the entire beneficial interest become united in one person who is not under an incapacity, the trust terminates." Subsection (2) provides an exception when a beneficiary having the entire beneficial interest in the assets of a spendthrift trust becomes the sole trustee without his consent. In that case, the beneficiary can procure the appointment of a new trustee and have the trust reconstituted. However, if a creditor of the beneficiary were to attach the trust assets before the beneficiary appointed a new trustee and reconstituted the trust, those assets would not have spendthrift protection in most states. 13
    The rights of a creditor under section 60 of the Restatement of Trusts (Third) (Tentative Draft No. 2) (Restatement (Third)) are dramatically different when it comes to a beneficiary acting as trustee. The creditor is able to reach the maximum amount the trustee-beneficiary can properly take. The trustee-beneficiary's rights and authority represent a limited form of ownership equivalence analogous to certain general powers under section 56, Comment b, of the Restatement (Third)—which essentially disregards the trustee-beneficiary's fiduciary position and treats the beneficiary as if he were the settlor of the trust and disregards any remainder beneficiaries. 14
  5. #5
    TrustUser is offline Senior Member
    Join Date
    Jul 2008
    Posts
    1,002
    hi tq,

    we have had this discussion before. what my research found in the past is that it is not important whether they are the same person.

    what is important is the language of the trust.

    if the trust defines the relationship as something other than the beneficiary owning the assets outright, then then that language must be used.

    in the most typical case (such as curb mentioned), creditors can not attack the trust based upon the premise that the beneficiary owns it outright.

    in this case, a creditor would have no better and no worse ability to get at the trust, irregardless of whether the trustee is a beneficiary or not.

    the trust of course should have the proper clauses, including spendthrift. but this is equally true whether the trustee is a bene or not.

    the easy way to look at it is that the trustee is simply an employee, whose job is to carry out the mandates of the trust.
  6. #6
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    If the beneficiary has the right (by being the trustee) to determine the amount of a distribution, a creditor can demand the highest distribution allowable to be the basis to collect his claim or judgment against. There is no need to attack the trust, all they need to do is include the trust as the debtor based on the ability to distribute to the beneficiary. This changes things depending on if the beneficiary is the trustee.

    If not, the trustee's discretion under trust rules cannot be challenged. If so, it can. That is a huge difference. New York is where a lot of the right to full amount available to be distributed rather than just the amount which was distributed law on trust protection developed.

    What the trust says is important, but you can't finesse long-standing law. What a trust "mandates" can be a litigious question. Even with long, precise and boring verbiage with court decisions in support, what is "income"? What is the manner to which one is accustomed? What *is* 'education'? Lots more. Basic semantics says words are the map and not the territory. The law of trusts is often concerned about the territory.
  7. #7
    MichaelQuestion is offline Junior Member
    Join Date
    Jun 2011
    Posts
    3
    Tranquility,

    Thank you for your feed back... you said:
    "The grantor can make anyone he wants be the trustee. Certain goals cannot be accomplished with certain trustees or beneficiaries"

    .. if the trustee is an immediate family member and the trustee is the bene, will the transfer of assets from the grantor to the trust completely remove the assets from the grantor's estate?
  8. #8
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    It depends. Lots of people try to give things without really giving them away. Your question cannot be answered without the facts.

    if the trustee is an immediate family member and the trustee is the bene
    I believe I already stated what usually happens in this situation.
    will the transfer of assets from the grantor to the trust completely remove the assets from the grantor's estate?
    It could. But, depending on the trust's provisions and/or, it might not. Does the grantor have any incidents of ownership?
  9. #9
    curb1 is offline Senior Member
    Join Date
    Mar 2002
    Location
    oregon
    Posts
    2,061
    OK, what am I missing?

    "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. In such a case, the trust is sometimes deemed to have terminated (with the result that the beneficiary owns the trust property outright)."

    To read that, I infer that a revocable trust that becomes an irrevocable trust on the death of the grantor is (sometimes) deemed to be terminated upon the death of the grantor when the child becomes the trustee/beneficiary of the irrevocable trust. Is that what you are implying? That is really significant.
  10. #10
    TrustUser is offline Senior Member
    Join Date
    Jul 2008
    Posts
    1,002
    curb,

    if you read tq's post to me, the two of us are not really in disagreement.

    but the language of the trust is paramount.

    in the most common example of an irrevocable trust, where a parent sets it up for his children - the language is highly likely to greatly separate the assets of the trust from being an individual ownership. this is the whole point of the trust, to begin with.

    what i am saying, is that if the trust is written correctly, you do not have to worry about assigning one of your children as the trustee. this includes the case where you have only one child.

    i had some concerns about this awhile back. tq and i had a good discussion on this a year or so ago, if you care to search the archives. it gave me the chance to do the research that i had wanted to do.
  11. #11
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    To read that, I infer that a revocable trust that becomes an irrevocable trust on the death of the grantor is (sometimes) deemed to be terminated upon the death of the grantor when the child becomes the trustee/beneficiary of the irrevocable trust. Is that what you are implying? That is really significant.
    As TrustUser states, this has been discussed in the past in the forums. If a revocable trust's grantor dies and the sole beneficiary becomes the trustee, the irrevocable trust has what is called merger and would disappear in many states. Some get around this by having ascertainable standards and a contingent beneficiary.

    Something like:
    All the money goes to son who is to be the sole trustee and is entitled to all needed for his health, education, maintenance and support during his life from either the income or the corpus of irrevocable trust B. If the corpus is not expended during the life of son, the residual goes to my worthless nephew, Buster.

    This would keep "son" from being the "sole" beneficiary.

    (The only thing I disagree with with TrustUser on this is the effect of trustee/beneficiary identification with creditors.)
  12. #12
    curb1 is offline Senior Member
    Join Date
    Mar 2002
    Location
    oregon
    Posts
    2,061
    Thank you.
  13. #13
    TrustUser is offline Senior Member
    Join Date
    Jul 2008
    Posts
    1,002
    hi tq,

    when we had our conversation last year, i found one thing to be very ironic.

    the title holding trust (illinois land trust) has been upheld by the courts, to my understanding.

    but the current use of it goes totally against the doctrine of merger. the trustee does nothing except follow the instructions of the beneficiary.
  14. #14
    tranquility is offline Senior Member
    Join Date
    Mar 2006
    Posts
    18,501
    From:
    Chrysler Credit Corporation v. Louis Joliet Bank and Trust Co, 863 F. 2d 534 (7th cir, 1988)

    "The Illinois land trust, by its very nature, is characteristically different from common law land trusts. While the common law accomplishes a split between the legal title in the trustee and the equitable title in the beneficiary, in an Illinois land trust, the trustee has both the legal and equitable title." Levine v. Pascal, 94 Ill.App.2d 43, 236 N.E.2d 425, 429 (1968); see also Citicorp v. Bank of Lansing, 604 F.Supp. 585 (N.D.Ind.1985); In re Estate of Alpert, 102 Ill.App.3d 600, 58 Ill.Dec. 239, 241, 430 N.E.2d 181, 183 (1981), aff'd, 95 Ill.2d 377, 69 Ill.Dec. 361, 363, 447 N.E.2d 796, 798 (Ill.1983); Kurek v. State Oil Co., 98 Ill.App.3d 6, 53 Ill.Dec. 643, 645, 424 N.E.2d 56, 58 (1981); People v. Chicago Title & Trust Co., 75 Ill.2d 479, 27 Ill.Dec. 476, 479, 389 N.E.2d 540, 543 (1979). Numerous authors have referred to the fictional nature of such trust. See, e.g., Haswell & Levine, The Illinois Land Trust: A Fictional Best Seller, 33 DePaul Ill.Rev. 277 (1984); Kenoe, Land Trust Financing and the Uniform Commercial Code, 52 Chi.B.Rec. 419 (1971). The Illinois land trust is a species of trust that, unlike other trusts, is immune to the doctrine of merger under most circumstances.
  15. #15
    TrustUser is offline Senior Member
    Join Date
    Jul 2008
    Posts
    1,002
    from the wiki [url=http://en.wikipedia.org/wiki/Land_trust]Land trust - Wikipedia, the free encyclopedia[/url]

    Since the law of England including the Statute of Uses was the law of America the question arose whether a land trust would be valid. This question went to the Illinois Supreme Court which ruled that if a land trust was set up with some minor duty on the trustee (such as to deed the property to the beneficiaries 20 years later), then the trust would not be considered passive and would be valid. Thus the land trust in America today is often called an “Illinois-type” land trust.[citation needed]

    Land trusts have been actively used in Illinois for over a hundred years and in recent decades have begun to be used in other states. The creation of land trusts is not a recorded document, however the declaration of a trust is through a "deed to trustee". Many believe that the trust is to be filed as a public document, however this removes all of the asset protection provided by the formation of the land trust. Robert Pless pioneered the land trust technology that has been used by many firms throughout the United States since the early 1990s.

    ME - i have seen and read title holding trusts. they very specifically give the trustee the ability to do anything and everything that is needed, but not unless the beneficiary allows it to be done.

    when the trust document itself describes what needs to happen, there is separation. when the beneficiary can decide to do whatever he wants, there is no separation.

Similar Threads

  1. Irrevocable Trusts & LLC
    By larryolsen in forum Wills, Trusts and Estate Planning
    Replies: 1
    Last Post: 09-21-2011, 10:09 AM
  2. Irrevocable trusts
    By hoevele in forum Wills, Trusts and Estate Planning
    Replies: 6
    Last Post: 03-27-2011, 06:23 PM
  3. Irrevocable Trusts
    By CraigJ in forum Wills, Trusts and Estate Planning
    Replies: 1
    Last Post: 09-25-2008, 03:26 PM
  4. Irrevocable Trusts
    By JoshDom1898 in forum Wills, Trusts and Estate Planning
    Replies: 1
    Last Post: 04-29-2007, 03:47 PM
  5. irrevocable trusts
    By buford in forum Wills, Trusts and Estate Planning
    Replies: 1
    Last Post: 03-20-2005, 08:44 AM

Tags for this Thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •  

© 1995-2012 Advice Company, All Rights Reserved

FreeAdvice® has been providing millions of consumers with outstanding advice, free, since 1995. While not a substitute for personal advice from a licensed professional, it is available AS IS, subject to our Disclaimer and Terms & Conditions Of Use.