Appointing Yourself as Trustee: When It Makes Sense and When It Doesn’t

As you develop your comprehensive estate plan, one of the key elements to consider is whether to include a trust. Trusts can offer numerous benefits, depending on your objectives, but they also require careful planning and decision-making. One of the most critical decisions you’ll face is choosing the right Trustee to manage the trust. You might consider appointing yourself as Trustee, but whether this is a good idea largely depends on the purpose of the trust and your overall estate planning goals. The Indianapolis attorneys at Frank & Kraft explain the scenarios in which it may be appropriate to serve as your own Trustee and when it may be better to appoint someone else.

Trust Basics: Understanding How a Trust Operates

A trust is a legal arrangement in which one party, known as the Trustee, holds and manages property for the benefit of another party, the beneficiary. The person who creates the trust is referred to as the “Settlor,” “Trustor,” or “Grantor.” The Grantor transfers property to the Trustee, who then holds and manages the property according to the terms set out in the trust agreement. The Trustee’s responsibilities include protecting and investing the trust assets, ensuring that the terms of the trust are followed, and distributing assets to the beneficiaries as specified. Trusts are generally categorized as either testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will upon their death, whereas a living trust becomes effective once all formalities are completed, and the trust is funded with assets. Living trusts can be further divided into revocable and irrevocable trusts, each serving different purposes in an estate plan.

Is Appointing Yourself as Trustee a Good Idea?

When you create a trust, you are essentially transferring ownership of your assets into that trust. This transfer of ownership can be unsettling, which is why many people consider appointing themselves as the Trustee so they can maintain control over the assets. Whether you should serve as your own Trustee, however, depends on the specific goals you have in mind for the trust.

For example, if your primary goal is incapacity planning, appointing yourself as Trustee of a revocable living trust may be a wise decision. In this scenario, you would continue to manage and control the trust assets just as you did before creating the trust. The advantage here is that if you become incapacitated, your chosen successor Trustee can step in and take over management of the trust without the need for court intervention. This allows for a seamless transition of control, ensuring that your assets are managed according to your wishes, even if you are no longer able to do so yourself.

Conversely, if your goal is asset protection or Medicaid planning, appointing yourself as Trustee could completely undermine the effectiveness of the trust. For asset protection, an irrevocable living trust is often used because once assets are transferred into this type of trust, they no longer belong to you; they are owned by the trust itself. This means that the assets are protected from creditors and are not counted when determining eligibility for Medicaid or other needs-based assistance programs. However, if you are the Trustee, you are still considered to have control over the assets, which can make them vulnerable to creditors and may disqualify you from receiving Medicaid benefits. In this case, it would be better to appoint someone else as Trustee to ensure that the trust serves its intended purpose.

Additionally, if you are considering creating a trust for estate tax planning purposes, the decision to appoint yourself as Trustee should be made with caution. Serving as Trustee of a trust designed to minimize estate taxes could result in the assets being included in your taxable estate, thereby defeating the purpose of the trust. Again, this is a situation where appointing an independent Trustee may be the better choice.

Ultimately, the decision to appoint yourself as Trustee should not be taken lightly. While it can be tempting to retain control over your assets, doing so may not always align with your long-term estate planning goals. Before making this important decision, it is crucial to consult with an experienced trust attorney who can guide you through the process and help you understand the implications of appointing yourself as Trustee.

Do You Have Questions about Whether to Appoint Yourself as Trustee?

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about whether to appoint yourself as Trustee, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.

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