How Can a Beneficiary Become Trustee in an Irrevocable Trust?

By Anna Assad

An irrevocable trust is a permanent agreement that creates a management plan for the owner's assets while he's still alive. A trust is an estate-planning tool often used in place of a will, a document that details what happens to a person's assets after his death. An irrevocable trust owner typically can't change the trust's terms or end the agreement. A trust's owner may name a beneficiary—a person who receives income and assets from the trust—as trustee or successor trustee in the agreement. A beneficiary may replace the original trustee if the trustee is unfit or violating her legal responsibilities.

An irrevocable trust is a permanent agreement that creates a management plan for the owner's assets while he's still alive. A trust is an estate-planning tool often used in place of a will, a document that details what happens to a person's assets after his death. An irrevocable trust owner typically can't change the trust's terms or end the agreement. A trust's owner may name a beneficiary—a person who receives income and assets from the trust—as trustee or successor trustee in the agreement. A beneficiary may replace the original trustee if the trustee is unfit or violating her legal responsibilities.

Agreement

An irrevocable trust agreement is a written document that lists the trust's terms. The document identifies the trust's owner—that, is the "trustor" or "grantor," as well as the beneficiaries and the trustee, who manages the trust. The trustor may name an alternate trustee; this person acts only if the first trustee dies or is unfit. When setting up the trust, the trustor can incorporate a set procedure for removal and replacement of a trustee. For example, an agreement might allow trustee removal only if all beneficiaries and the trustor agree. Other than age requirements—trustees must be at least 18 years of age—state laws don't restrict a trustor's trustee choice, so the trustor may name a beneficiary as trustee or alternate trustee.

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Trustee

A trustee of an irrevocable trust has various duties and legal responsibilities; she must handle the trust's affairs with honestly and integrity. She oversees the trust's assets, handles trust accounts and finances, pays bills and distributes trust income to the beneficiaries. The trust agreement guides all the trustee's actions. For example, if the agreement states a specific beneficiary receives income only on December 15 of each year, the trustee must give the beneficiary the income on that date. The overall health of an irrevocable trust is threatened if the trustee is incapable of performing her duties, mishandles the trust funds or fails to uphold her legal obligations.

Trustee Removal

State laws allow the removal procedure outlined in the agreement to govern the removal of a trustee, but this is difficult if the agreement didn't address removal or if the trustor can't act. Irrevocable trust agreements sometimes give trustee removal powers to the trustor, and if the trustor is dead or incompetent, the beneficiaries have to act to protect their interests. In cases such as these, a person with an interest in the trust, such as a beneficiary or the trustor, may petition the probate court for removal of a trustee. An alternate trustee is usually the first choice for the new trustee if the agreement named a successor.

Trustee Replacement

The party petitioning the court for removal of a trustee has to prove why the trustee is unfit and suggest to the court possible replacements. At that time, a beneficiary may step forward and ask to become trustee. Courts typically evaluate trustee candidates and ask the beneficiaries which new trustee they will consent to. If the other beneficiaries agree to the volunteering beneficiary's appointment, the court may be inclined to grant the request. The court may name a temporary independent trustee or receiver during the proceedings to safeguard the trust.

Tax Consequences

An irrevocable trust is set up for different many reasons, but gaining tax benefits is a common goal. A beneficiary becoming a trustee may change the way state and federal tax agencies view the trust. An irrevocable trust is sometimes designed such that the trustor isn't taxed on its income; the trust itself is taxed as an entity, and the beneficiaries taxed on their distributed shares. Naming a beneficiary as trustee may cause the taxes to revert to the trustor.

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Removing a Successor Trustee

References

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What if You Violated an Irrevocable Trust?

The person appointed to oversee an irrevocable trust must act according to the terms of the trust and in the best interest of those who benefit under the trust. While all states recognize this duty, the type of recourse available in cases of breach can vary. Knowing when you may petition the court for removal of a trustee and when he may be personally liable for financial losses will help ensure that your trust operates according to the wishes of its creator.

Can I Change a Successor Trustee Without a Lawyer?

A successor trustee of a trust is the party appointed to replace the trustee named in the original trust deed. There are a number of ways to replace a successor trustee and none of them absolutely require that you retain a lawyer. Keep in mind that state laws vary somewhat on the process of replacing a successor trustee.

How to Name a Living Trust

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