Can I be trustee and beneficiary of my trust?

This column first appeared in the San Antonio Express News and other Hearst Newspapers on April 3, 2020.

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Dear Mr. Premack: I have been told I cannot be the grantor, trustee, and beneficiary of my living trust because of something called the Doctrine of Merger. Is that true? – J.L.

Start at the beginning. Law defines a trust as an agreement under which title to some asset is split (by the grantor) into a management component (given to the trustee) and a benefit component (given to the beneficiary). The grantor is the person who owns the assets prior to creation of the trust, and who working with legal counsel sets out the terms and conditions of the trust.

Those terms and conditions include selection of the trustee to manage the assets, selection of additional successor trustees in case the original trustee dies or becomes disabled, directions on how the trustee is to operate, selection of one or more beneficiaries, and instructions on how and when those beneficiaries receive any portion of the assets.

The grantor typically retains the legal right to modify the trust, or to legally revoke the trust if circumstances change. The grantor can also impose self-restrictions by giving up the right to modify or revoke the trust. It all depends on the grantor’s goals and often on the tax impact of the grantor’s choices.

Trusts can also be made testamentary or inter-vivos. A testamentary trust is contained in a Will and, while the Will’s maker (testator) is alive a testamentary trust is entirely dormant. It only becomes active after the death of the testator and probate of the Will. An inter-vivos trust takes effect while the grantor is alive and may continue for many years after the grantor’s death.

You specifically have asked about a “living trust”, which is legally classified as an inter-vivos revocable grantor trust. You, Joe, decide to set up a trust for your own assets, with you as the trustee and you as the beneficiary. You legally keep the power to modify or revoke the trust. You designate contingent beneficiaries who will receive those assets when you die, avoiding probate court. That is a very typical living trust arrangement and is where your question about the Doctrine of Merger arises.

The Doctrine of Merger is the idea that when you try to split an asset’s ownership between a trustee and a beneficiary, but both of those roles are held by the same person, the title then merges (is no longer split) causing the trust to fail. Here is a scenario: Joe establishes a trust for Joe with Joe’s money, with Joe as Trustee, with Joe as beneficiary, and with his daughter Joan as after-death beneficiary. There is no merger here, because Joan’s contingent after-Joe’s-death interest maintains the split between the trustee and beneficiary.

But if the trust goes on to say that after Joe’s death Joan becomes both Trustee and sole beneficiary, there is merger. There is no longer a split between the trustee’s interest and the beneficiary’s interest. The trust would fail, and Joan would be legally treated as direct owner of the asset due to the Doctrine of Merger.

One way to avoid merger is to name a different person as trustee to act after Joe dies. Say that Joan is twenty years old, so Joe’s trust says Jean will be trustee after Joe dies until Joan turns thirty. Now there is no merger, so the trust continues until Joan is thirty.

When written and funded correctly, trusts can be very useful tools to help you accomplish many goals. Sometimes they are not the correct legal tool. Talk with your estate planning attorney to determine if a trust is the right legal tool to help you meet your specific goals.

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Paul Premack is a Certified Elder Law Attorney, handling Wills and Trusts, Probate, and Elder Law issues. He is licensed to practice law in Texas and Washington. View past legal columns or submit free questions on those legal issues via www.Premack.com.