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.

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.

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.

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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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How to Move an IRA to an Irrevocable Trust
 

References

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Irrevocable Family Trust Laws in Massachusetts

An irrevocable family trust can be effective estate planning tool. When an individual establishes this type of trust, he appoints an individual, known as a trustee, to oversee the administration of the trust. In Massachusetts, specific rules apply to the trustee. State law also sets forth the limited circumstances for the modification or termination of the trust. Understanding the state laws that apply to irrevocable family trusts will help ensure the proper distribution of property held in the trust.

Roles of a Trustee

A trustee manages property for beneficiaries according to the terms of a trust. Generally, a trustee is appointed by a person, called a grantor or settlor, who establishes and funds the trust. The settlor transfers legal title of assets to the trustee so she may manage and distribute them for named beneficiaries. A trustee's role includes responsibly and honestly handling trust assets and ensuring the purpose of the trust is carried out.

Do It Yourself Living Trust

A living trust is a legal device that places assets you contribute under the control of a trustee.The trustee then transfers trust assets to your beneficiary as you directed in the trust deed. A trust can be created as revocable or irrevocable. In many cases, you can set up a trust on your own without significant legal risk.

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