Category: Trusts

Creating a trust is an excellent way to pass on the estate to the beneficiaries. However, the part where individuals face problems is nominating a trustee. Questions like who can be the trustee, whether a trustee can also be a beneficiary, etc., always ring the bell in the mind.

Don’t worry! Leave all your worries to us, and we’ll answer all your questions.

Below, we’ll explain the difference between a trustee and a beneficiary and whether one person can be both. We’ll also offer tips on selecting the right person to manage the trust as a trustee.

What Is A Trustee & A Beneficiary? 

A trustee is one of the most important parts of a legal trust arrangement. When someone creates a trust, it mainly involves three parties: the trustor, the trustee, and the beneficiaries (who can be one person or more).

The trustor creates the trust, while the beneficiaries are the individuals for whom it is created. The trustee plays a crucial role between the two parties by holding and administering the estate until the beneficiaries meet the conditions set by the trustor.

These conditions can vary based on the purpose of the trust. For example, if the trust is created for the well-being of an incapacitated person, the assets will only be used for that purpose, and the trustee will ensure that the terms are followed.

Can A Trustee Also Be A Beneficiary?

Yes, a trustee can also be a beneficiary; there are no legal restrictions prohibiting someone from fulfilling both roles. Just remember, it’s impossible if only one beneficiary and one trustee are involved in the trust.

In other words, a sole beneficiary cannot act as the trustee. However, If there are multiple beneficiaries and trustees, you can nominate a beneficiary from your trust to serve as a trustee alongside others.

Potential Conflicts For Nominating Beneficiary As A Trustee

Although nominating a beneficiary as a trustee is possible, legal experts don’t suggest it because of potential conflicts. The beneficiary as a trustee arrangement is suitable only when you’re sure no other beneficiary will object to this decision in the future.

When other beneficiaries know that one is a trustee, it can often lead to disputes. It’s because they might think you don’t trust them to bear this responsibility.

Furthermore, trustees can misuse their power to create conflicts. For example, a trustee who’s also a beneficiary might make decisions that benefit their interests. Whatever the cause, this decision can lead to long legal battles. This is why it’s best to avoid it!

Can A Beneficiary Be A Trustee of An Irrevocable Trust?

An irrevocable trust is a type of trust that cannot be revoked once it’s created. Once the trustor sets up the trust with all the conditions they want, the assets in the trust are no longer the trustor’s property.

Since it is not the trustor’s property, it can’t be changed. Yet, despite these strict rules, a beneficiary can be a trustee of an irrevocable trust. The only requirement is that there must be more than one trustee and more than one beneficiary.

Who Is The Best Person To Be A Trustee?

You can nominate any individual as trustee of your trust. It can be from your family, friends, relatives, or someone you trust – the decision is yours. However, they must meet some requirements.

For instance, the person you’re considering nominating must be an adult and mentally competent. Besides these two conditions, you should consider the points below:

• Responsible: The best person to be a trustee is someone responsible. Remember that the trustee will be responsible for everything from estate administration to distribution. This is why choosing a person responsible enough to keep up with all the tasks is important.
• Have good knowledge: It’s not important for a trustee to be a financial guru or legal expert, but having basic knowledge is beneficial. Otherwise, the trustee won’t be able to manage the trust’s financial and legal matters. In such cases, trustees may need professional assistance, which can be costly and time-consuming.
• Honest person: Honesty is an essential trait for a trustee, as your trustee will manage your entire estate. They should act with integrity and transparency in all matters related to the trust.
• Financially stable: Another important point to consider is financial stability. It’s unnecessary, but it can provide additional security to the assets. A financially stable trustee isn’t likely to mismanage the trust finances for their personal interest.

Final Thoughts

So yes, a trustee can also be the beneficiary (as long as there’s no sole beneficiary or sole trustee) of the trust, although it’s not generally advised. This decision can lead to legal battles among beneficiaries in the future.

Moreover, there’s a risk that the trustee you choose may prioritize their own interests as a beneficiary, leading to conflicts of interest. So make your decision carefully! If you need more assistance, don’t hesitate to contact our trust attorney for guidance. 

How Does One Become An “Executor?”

An executor, also known as a personal representative, is a person appointed by a court to manage the distribution of assets and payment of debts of a deceased person’s estate. In California, the duties of an executor are governed by the Probate Code, which outlines the responsibilities and powers of the executor in the administration of the estate.

What are the Practical Duties of the Executor?

One of the primary responsibilities of an executor is to gather and inventory the assets of the deceased person’s estate. This includes identifying and locating all assets, such as real estate, personal property, bank accounts, and investments, and determining their value. The executor must also identify and notify any known creditors of the estate, and pay or make arrangements to pay any debts, taxes, and expenses of the estate.

The executor is also responsible for distributing the assets of the estate to the beneficiaries in accordance with the terms of the will or California’s laws of intestate succession if there is no will. This may include selling assets, transferring property, and making cash payments to beneficiaries. The executor must also prepare and file any necessary court documents, including an inventory of the estate’s assets and a final accounting of the estate’s finances.

Another important duty of an executor is to appear in court when necessary to answer any questions about the administration of the estate. This may include attending hearings to request court approval of certain actions, such as the sale of real estate or the distribution of assets to beneficiaries. The executor must also represent the estate in any legal proceedings, such as will contests or disputes over the distribution of assets.

What Is the Fiduciary Duty of an Executor?

In addition to these specific responsibilities, an executor also has a general duty to act in the best interests of the beneficiaries of the estate. This includes keeping beneficiaries informed about the progress of the estate administration, and providing them with any information they request about the estate. The executor must also avoid conflicts of interest and refrain from using their position for personal gain.

However, being an executor is not easy, it is a huge responsibility that requires a good deal of time, effort, and attention to detail. The executor must familiarize themselves with the probate process, including the requirements of the California Probate Code, and must be prepared to spend a significant amount of time managing the estate’s assets, paying debts, and communicating with beneficiaries.

Additionally, the executor must be able to manage the finances of the estate and make decisions regarding the sale or distribution of assets. This may include working with real estate agents, attorneys, and other professionals to manage the estate’s assets and resolve any legal issues that may arise. The executor must also be able to communicate effectively with beneficiaries, who may have different expectations and interests regarding the distribution of the estate’s assets.

In conclusion, being an executor is a complex and demanding role that requires a great deal of responsibility and attention to detail. The executor must be able to manage the estate’s assets, pay debts and taxes, and distribute assets to beneficiaries in accordance with the terms of the will or California’s laws of intestate succession. They must also be able to navigate the probate process, communicate effectively with beneficiaries, and make difficult decisions regarding the distribution of the estate’s assets. It’s a challenging role, but one that comes with the important responsibility of managing the final wishes of the deceased, and ensuring that their assets are distributed fairly among their loved ones.

Please note: This website provides information, content, and materials that are not intended to provide legal advice, but rather serve as a general resource for information. Information on this website may not constitute the most up-to-date legal or other information. Please schedule a free consultation to talk with an estate attorney for answers to your specific legal questions and legal advice for your specific case.

For many Americans, retirement accounts comprise a substantial portion of their wealth.

When planning your estate, it is important to consider the ramifications of tax-deferred retirement accounts, such as 401(k) and 403(b) accounts and traditional IRAs. (Roth IRAs are not tax-deferred accounts and are therefore treated differently). One of the primary goals of any estate plan is to pass your assets to your beneficiaries in a way that enables them to pay the lowest possible tax.

Generally, receiving inherited property is not a transaction that is subject to income tax. However, that is not the case with tax-deferred retirement accounts, which represent income for which the government has not previously collected income tax. Money cannot be kept in an IRA indefinitely; it must be distributed according to federal regulations. The amount that must be distributed annually is known as the required minimum distribution (RMD). If the distributions do not equal the RMD, beneficiaries may be forced to pay a 50% excise tax on the amount that was not distributed as required.

After death, the beneficiaries typically will owe income tax on the amount withdrawn from the decedent’s retirement account. Beneficiaries must take distributions from the account based on the IRS’s life expectancy tables, and these distributions are taxed as ordinary income. If there is more than one beneficiary, the one with the shortest life expectancy is the designated beneficiary for distribution purposes. Proper estate planning techniques should afford the beneficiaries a way to defer this income tax for as long as possible by delaying withdrawals from the tax-deferred retirement account.

The most tax-favorable situation occurs when the decedent’s spouse is the named beneficiary of the account. The spouse is the only person who has the option to roll over the account into his or her own IRA. In doing so, the surviving spouse can defer withdrawals until he or she turns 70 ½; whereas any other beneficiary must start withdrawing money the year after the decedent’s death.

Generally, a revocable trust should not be the beneficiary of a tax-deferred retirement account, as this situation limits the potential for income tax deferral. A trust may be the preferred option if a life expectancy payout option or spousal rollover are unimportant or unavailable, but this should be discussed in detail with an experienced estate planning attorney. Additionally, there are situations where income tax deferral is not a consideration, such as when an IRA or 401(k) requires a lump-sum distribution upon death, when a beneficiary will liquidate the account upon the decedent’s death for an immediate need, or if the amount is so small that it will not result in a substantial amount of additional income tax.

The bottom line is that trusts typically should be avoided as beneficiaries of tax-deferred retirement accounts, unless there is a compelling non-tax-related reason that outweighs the lost income tax deferral of using a trust. This is a complex area of law involving inheritance and tax implications that should be fully considered with the aid of a estate planning lawyer.

Every year, each individual who dies in the U.S. can leave a certain amount of money to his or her heirs before facing any federal estate taxes. For example, in 2013, a person who died could leave $5.25 million to his or her heirs (or a charity) estate tax free, and everything over that amount would be taxable by the federal government. Transfers at death to a spouse are not taxable.

Therefore, if a husband died owning $8 million in assets in 2013 and passed everything to his wife, that transfer was not taxable because transfers to spouses at death are not taxable. However, if the wife died later that year owning that $8 million in assets, everything over $5.25 million (her exemption amount) would be taxable by the federal government. Couples would effectively have the use of only one exemption amount unless they did some special planning, or left a chunk of their property to someone other than their spouse.

Estate tax law provided a tool called “bypass trusts” that would allow a spouse to leave an inheritance to the surviving spouse in a special trust. That trust would be taxable and would use up the exemption amount of the first spouse to die. However, the remaining spouse would be able to use the property in that bypass trust to live on, and would also have the use of his or her exemption amount when he or she passed. This planning technique effectively allowed couples to combine their exemption amounts.

For the year 2013, each person who dies can pass $5.25 million free from federal estate taxes. This exemption amount is adjusted for inflation every year. In addition, spouses can combine their exemption amounts without requiring a bypass trust (making the exemptions “portable” between spouses). This change in the law appears to make bypass trusts useless, at least until Congress decides to remove the portability provision from the estate tax law.

However, bypass trusts can still be valuable in many situations, such as:

(1) Remarriage or blended families. You may be concerned that your spouse will remarry and cut the children out of the will after you are gone. Or, you may have a blended family and you may fear that your spouse will disinherit your children in favor of his or her children after you pass. A bypass trust would allow the surviving spouse to have access to the money to live on during life, while providing that everything goes to the children at the surviving spouse’s death.

(2) State estate taxes. Currently, 13 states and the District of Columbia have state estate taxes. If you live in one of those states, a bypass trust may be necessary to combine a couple’s exemptions from state estate tax.

(3) Changes in the estate tax law. Estate tax laws have been in flux over the past several years. What if you did an estate plan assuming that bypass trusts were unnecessary, Congress removed the portability provision, and you neglected to update your estate plan? You could be paying thousands or even millions of dollars in taxes that you could have saved by using a bypass trust.

(4) Protecting assets from creditors. If you leave a large inheritance outright to your spouse and children, and a creditor appears on the scene, the creditor may be able to seize all the money. Although many people think that will not happen to their family, divorces, bankruptcies, personal injury lawsuits, and hard economic times can unexpectedly result in a large monetary judgment against a family member.

Although it may appear that bypass trusts have lost their usefulness, there are still many situations in which they can be invaluable tools to help families avoid estate taxes.