Trustee as Beneficiary
Illinois trusts are regulated under the state’s Trusts and Trustee’s Act. Under that code, one person can be both a beneficiary and a trustee for the same trust. Having a beneficiary as a trustee is quite common with living trusts. Living trusts are created while the trust creator, or grantor, is still alive. Often, the grantor will make himself the trustee and a beneficiary. The grantor would no longer legally own the trust property, but he would retain the ability to control it as trustee and receive the benefits of the trust property as a beneficiary. This means that the trustee-beneficiary would retain some control of how the trust assets are to be distributed and used. All assets included in the trust are excluded from the grantor’s probate estate when he dies.
Creating a Trust
To formalize a valid trust in Illinois with a trustee-beneficiary, the grantor must draft and sign a trust agreement. The trust agreement identifies the trustees and beneficiaries, as well as instructs the trustee how to manage and distribute the trust assets. The trustee-beneficiary should be clearly identified in the document. The trust does not become effective until it is funded, which occurs when the property is transferred to the trustee. Real estate should be transferred by recording a deed with the recorder’s office of the county where the property is located. Bank accounts and other financial accounts must be transferred to the trustee by issuing a “letter of direction” to the holding institution. Both deeds and the letter of direction should explicitly state that the property is being transferred to the trustee to hold on behalf of the trust.
In Illinois, the trustee owes a fiduciary duty to all of the beneficiaries. This means that the trustee cannot take any action related to the trust that would enrich her at the beneficiaries’ expense. Examples of a trustee violating her fiduciary duties include withdrawing trust assets for her own benefit or to be biased when dealing with the beneficiaries. If a trustee is also a beneficiary, establishing her fiduciary responsibilities can be difficult. The trustee-beneficiary has rights to the trust property that a normal trustee does not have. Actions such as taking trust property for a trustee-beneficiary’s personal use may not be considered a breach of duty where it normally would be.
Trust Agreement Tips
When drafting the trust agreement that appoints a trustee-beneficiary for an Illinois trust, it is important to clearly define when beneficiaries can claim property and how the trustee should manage the funds. By minimizing the trustee-beneficiary’s discretion, you can minimize when the possibility that the trustee-beneficiary can breach his responsibilities and you make it easier to evaluate his performance.