Trustee as Owner of Assets

[krose99]

What is the name of your state (only U.S. law)? Illinois

Understanding that a Trustee is given Legal ownership of the trust's assets, but not equitable ownership.

The question is around the distinction:

If a Trustee purchases an Annuity with Trust assets (they are listed as Owner (not Name TTE), and Trust is named as Beneficiary), and after a disbursement of some of the funds, the Trustee is taxed personally, does this show that the annuity their personal property? Is this a normal way to set up an investment with trust funds? Or is it now reachable by their personal creditors?

Should the annuity be set up with the Owner as "Trustee Name, TTE"? The fear is that the annuity is now an asset of the Trustee that can be reached by the government and/or creditors. They were personally taxed on the disbursement.

 

[justalayman]

No it is not a normal way for a trust to purchase anything. As stated it was the prosperty of the trustee as an individual. It would be at risk due to his personal issues

If the beneficiaries allow a trustee that acts like that to remain trusted they probably shouldn't be too surprised to be the trust has no assets.

 

[krose99]

No it is not a normal way for a trust to purchase anything. As stated it was the prosperty of the trustee as an individual. It would be at risk due to his personal issues

If the beneficiaries allow a trustee that acts like that to remain trusted they probably shouldn't be too surprised to be the trust has no assets.

Thank you very much for your response. One last question.

If the Owner is designated as "Trustee TTE", would that make a difference in ownership?

 

[LdiJ]

What is the name of your state (only U.S. law)? Illinois

Understanding that a Trustee is given Legal ownership of the trust's assets, but not equitable ownership.

The question is around the distinction:

If a Trustee purchases an Annuity with Trust assets (they are listed as Owner (not Name TTE), and Trust is named as Beneficiary), and after a disbursement of some of the funds, the Trustee is taxed personally, does this show that the annuity their personal property? Is this a normal way to set up an investment with trust funds? Or is it now reachable by their personal creditors?

Should the annuity be set up with the Owner as "Trustee Name, TTE"? The fear is that the annuity is now an asset of the Trustee that can be reached by the government and/or creditors. They were personally taxed on the disbursement.

The trustee should NOT be the owner of the assets, the trust should be the owner of the assets. If the trustee is being taxed personally then its definitely in the trustee's name and that is a HUGE no-no. Its a huge breach of fiduciary duty.

 

[tranquility]

What kind of trust is it? (What is its purpose?) Is the "trustee" also the grantor?

 

[krose99]

What kind of trust is it? (What is its purpose?) Is the "trustee" also the grantor?

I don't want to identify the wrong kind of trust. The grantor is not the trustee. The mother left a trust to her two (at the time minor) children. She passed and the Aunt is the trustee. The issue to paying out the trust is that one beneficiary is special needs. The Aunt is trustee to funds for both beneficiary (and the other adult sibling does not want disbursement until the special needs sibling passes so as to maintain the funds in case he needs them to care for the special needs sibling).

I hope that makes sense.

 

[LdiJ]

I don't want to identify the wrong kind of trust. The grantor is not the trustee. The mother left a trust to her two (at the time minor) children. She passed and the Aunt is the trustee. The issue to paying out the trust is that one beneficiary is special needs. The Aunt is trustee to funds for both beneficiary (and the other adult sibling does not want disbursement until the special needs sibling passes so as to maintain the funds in case he needs them to care for the special needs sibling).

I hope that makes sense.

If Auntie has the assets titled in her name, with the trust as beneficiary, she has done it wrong...period.

 

[tranquility]

I don't want to identify the wrong kind of trust. The grantor is not the trustee. The mother left a trust to her two (at the time minor) children. She passed and the Aunt is the trustee. The issue to paying out the trust is that one beneficiary is special needs. The Aunt is trustee to funds for both beneficiary (and the other adult sibling does not want disbursement until the special needs sibling passes so as to maintain the funds in case he needs them to care for the special needs sibling).

I hope that makes sense.

While I agree with the others the titling in the name of the trustee alone and not as trustee of the trust is something to be concerned about. That the individual has been taxed is more worrisome still. It is reasonable to have this looked into by a professional who can ask in the name of the beneficiary(s) what is happening.

That being said, there is a complex interaction between trusts and annuities in regards to taxation. In many cases, if the "owner" is not a natural person or a trust as an agent for a natural person, certain taxable benefits are lost. With both a grantor trust or a revocable trust (aka living trust), the tax benefits remain. If a trust has some contingent beneficiary of a charity and is irrevocable, there could be a problem. A special needs trust that has a Medicaid payback provision could have a problem as well. I don't know of any guidance on such a trust and, out of an abundance of caution, a tax planner might try to use a different set of facts and side contracts to build a better case for tax deferral. Some companies who write annuity contracts use a "beneficiary designation with a restricted payout" to get around this problem.

So, it is possible there is nothing wrong here. The main concern to me would be the trustee as an individual being taxed for any payout from the annuity. That seems highly problematical absent some provision from the trust to compensate the trustee.

 

[krose99]

While I agree with the others the titling in the name of the trustee alone and not as trustee of the trust is something to be concerned about. That the individual has been taxed is more worrisome still. It is reasonable to have this looked into by a professional who can ask in the name of the beneficiary(s) what is happening.

That being said, there is a complex interaction between trusts and annuities in regards to taxation. In many cases, if the "owner" is not a natural person or a trust as an agent for a natural person, certain taxable benefits are lost. With both a grantor trust or a revocable trust (aka living trust), the tax benefits remain. If a trust has some contingent beneficiary of a charity and is irrevocable, there could be a problem. A special needs trust that has a Medicaid payback provision could have a problem as well. I don't know of any guidance on such a trust and, out of an abundance of caution, a tax planner might try to use a different set of facts and side contracts to build a better case for tax deferral. Some companies who write annuity contracts use a "beneficiary designation with a restricted payout" to get around this problem.

So, it is possible there is nothing wrong here. The main concern to me would be the trustee as an individual being taxed for any payout from the annuity. That seems highly problematical absent some provision from the trust to compensate the trustee.

Thank you for your response. You're right in that annuities are very complicated. It seems that not even the law or tax codes are clear, so there's always opinions but never clear guidance. It was her being taxed that raised the red flag. She's also argumentative and a bit entitled in her role. She's never produced an accounting and the one time in which was asked to, got mad. She is never to be questioned. She has never sought counsel on what her legal obligations are as a trustee and the only financial counsel she sought now seems to have steered her on a bad course. Your responses helped solidify the questions that we have for her.

 

[justalayman]

Given the history, unless this involves less than $1.95 I would suggest you hire an attorney to help you. It's obvious that due to your lack of success in demanding actions actuslly require of a trustee you are not likely to be successful in further endeavors without the aid of an attorney. If you don't know what is required of the trustee, how can you demand anything of the trustee? If the trustee simply says no, what then?

Get an attorney that understands this so when they send a letter demanding some action, they know it is required and they know what to do if rebuffed.