The question of whether you can serve as the trustee of your own trust is a common one, and the answer is generally yes, but with significant caveats and considerations. While legally permissible in many states, including California where Ted Cook practices estate planning, self-trusteeship isn’t always the most practical or beneficial arrangement, and it demands careful deliberation. It’s crucial to understand the responsibilities and potential drawbacks before deciding if it’s the right path for your estate plan. Roughly 65% of revocable living trusts have the grantor also named as trustee, demonstrating its popularity, but this doesn’t negate the need for careful planning.
What are the benefits of being your own trustee?
Maintaining control is often the primary driver for individuals choosing self-trusteeship. As trustee, you continue to manage and benefit from the trust assets during your lifetime. This can be particularly appealing for those wanting to retain authority over investments and financial decisions, or those who simply distrust relinquishing control to another party. It also avoids the costs associated with hiring a professional trustee, which can range from 1-5% of the trust assets annually. However, this benefit must be weighed against the responsibilities involved. “The freedom to manage your assets is valuable, but it comes with accountability,” says Ted Cook, emphasizing the need for diligent record-keeping and adherence to fiduciary duties.
What happens if I become incapacitated?
This is where the critical limitations of self-trusteeship become apparent. If you, as the trustee, become incapacitated due to illness or injury, a court may need to appoint a successor trustee to manage the trust assets. This process, known as a conservatorship, can be time-consuming, costly, and public. According to the American Bar Association, probate and conservatorship proceedings can often take anywhere from six months to two years to resolve. It’s like watching a beautiful ship slowly lose its course in a storm – a potentially avoidable disaster. I remember a client, Mr. Harrison, who, proud of his self-reliance, established a trust with himself as trustee, without adequately addressing this contingency. When a sudden stroke left him unable to manage his affairs, his family faced a protracted legal battle to gain control of the trust assets, incurring substantial legal fees and causing significant emotional distress.
Is it better to have a co-trustee?
A co-trustee arrangement can mitigate the risks of sole self-trusteeship. By appointing a trusted co-trustee—a family member, friend, or professional—you create a built-in safeguard against incapacity or mismanagement. Co-trustees share the fiduciary duties and can provide oversight and support. This can be particularly valuable if you lack financial expertise or simply want a second opinion on important decisions. “Having a co-trustee adds a layer of protection and accountability,” Ted Cook explains. It’s akin to having a co-captain on a ship – someone to share the responsibility and navigate through choppy waters. One of Ted Cook’s clients, Mrs. Gable, initially named herself as sole trustee. After a conversation about the potential downsides, she added her daughter as a co-trustee, providing both oversight and peace of mind.
What if I want to maximize tax benefits and asset protection?
While self-trusteeship is permissible, it generally doesn’t offer any additional tax benefits or asset protection. In some situations, relinquishing control to an independent trustee can provide greater protection from creditors or lawsuits. Moreover, certain types of trusts, such as irrevocable life insurance trusts (ILITs) or special needs trusts, require an independent trustee to maintain their tax-exempt status or eligibility for government benefits. It’s a subtle but important point: while you retain control as the self trustee you don’t enjoy the additional security of the trust from outside claims. It’s similar to building a fortress but leaving the gates open – the structure is there, but the protection is incomplete. Fortunately, a proactive plan can alleviate most concerns and allow for the best solution for each client.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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