The person who establishes an irrevocable trust can select anyone to act as trustee, including members of the family or close associates also named as beneficiaries. If you set up a trust, it’s important to have someone who shares your values and financial concerns to manage the trust. A beneficiary, however, has to act carefully to operate the trust’s objectives without causing friction among other beneficiaries in the trust.
An irrevocable trust is one of two main categories of trusts; the other is a revocable trust. An irrevocable trust cannot usually be changed or amended during the lifetime of the person who creates the trust, while a revocable trust can be changed or modified at any time by the person generating the trust. When you create an irrevocable trust, your instructions stay intact once the trust goes into effect, typically after you sign the trust agreement with your directions and transfer property or other assets into the trust.
You can name your spouse, child, sibling or friend as trustee of an irrevocable trust even if they are beneficiaries. Estate planning attorneys that handle trusts might advise against such close associations managing a trust fund. If you name one of your children as trustee, for example, it could lead to disputes regarding distributions among the other children later on.
A trustee might also handle selling or buying assets for the trust. A family member making such decisions could ignite disagreements with other family members about the handling of assets. The beneficiary must remain impartial as a trustee and avoid any indication of self-interest in managing the trust’s affairs, which could lead to other beneficiaries contesting the trust in court.
Spouse as Administrator
If you set up a trust, you can also name yourself as trustee. This could defeat the purpose of an irrevocable trust. The creator of an irrevocable trust no longer has control over the trust, so assets in the trust remain safe from creditors and estate taxes. If you name yourself as trustee, you become active in handling the trust assets and could lose some of the tax benefits that were once protected, depending on the laws of the state. An alternative would include naming your spouse as trustee. Your spouse has your interests in mind as administrator for your children and as a beneficiary. You remain separate from the trust managed by a beneficiary who has the same objectives as you.
A beneficiary could be named as a successor trustee and take over as trustee if the original trustee dies or becomes unable to manage the trust. This could also occur following a court action if beneficiaries believe the trustee has mismanaged funds or has not acted in their best interests. If the court rules in their favor, a beneficiary could become the new trustee, but only if all beneficiaries agree to the move. The court could ask the beneficiaries to turn over administration to a trust company.
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