Property held in a marital trust avoids estate tax if your spouse is the sole beneficiary. However, property in a non-marital irrevocable trust can pass to multiple beneficiaries without estate taxation. Irrevocable trusts can also protect assets from being used in determining Medicare eligibility. Once an irrevocable trust is funded, the trust property cannot be taken back by the grantor without the consent of the beneficiary. It is legal to name a beneficiary as trustee, such as a spouse.
Duty of the Trustee
A trustee's duty is to hold property on behalf of another, the beneficiary, during and after the life of the grantor. A trustee can use property only as outlined in the trust. Trusts typically contain specific instructions concerning how the property is to be managed. However, such instructions can range from broad to very specific.
Spouse as Trustee
Choosing a spouse to be the trustee of an irrevocable trust has advantages. For instance, a spouse likely has a thorough understanding of your wishes. Ideally, there is also a strong sense of trust between spouses. Thus, you may feel a sense of reassurance knowing your spouse will handle your affairs appropriately. However, you should think carefully before naming your spouse as trustee. For instance, if your spouse suffers from dementia or has a chemical dependency or gambling problem, it would be wise to choose a different trustee.
Trustee Removal and Replacement
A well-written irrevocable trust should provide a mechanism for the grantor to remove and replace a trustee during the grantor's lifetime. However, if the grantor is dead or cannot act, a beneficiary must petition the probate court to have the trustee removed. A showing of why the current trustee is unfit must be made by the petitioner. The court may also be offered potential replacements. However, if an alternate trustee was named in the trust, that person usually becomes the trustee if the petition is approved by the court.