The Life Beneficiary-trustee
| Publication year | 1983 |
| Pages | 52 |
| Citation | Vol. 12 No. 1 Pg. 52 |
1983, January, Pg. 52. The Life Beneficiary-Trustee
Trusts are popular and versatile estate planning tools. They allow testators flexibility in structuring the distribution of their estates. Among those characteristics contributing to the popularity of trusts are the following:
1. Control over the beneficiaries' use and enjoyment of the trust income and principal.
2. Potential advantageous tax consequences for the testator's estate and the beneficiaries and their estates.
3. Separation of the benefits of the trust property from its day-to-day administration.
4. Testator's ability to provide for expert financial management of the trust property.
Because of the above characteristics, estate plans frequently include at least one trust. If estate tax consequences are not important, a typical testamentary trust may provide for trust income to be distributed to the life beneficiary (likely, the surviving spouse) with the remainder passing to third parties (likely, the testator's children). The trustee may be empowered to distribute part or all of the trust principal to the life beneficiary. The power to invade principal may be narrow---based on health, support and maintenance---or broad---allowing the trustee to distribute part or all of the principal to the life beneficiary for his or her happiness, comfort and welfare.
Tax considerations sometimes dictate the use of two or more trusts. For example, one trust may be structured to obtain the optimal marital deduction for the testator's estate. A second trust may be structured to use the testator's federal estate tax exemption equivalent and bypass the estate of the surviving spouse. As the exemption equivalent approaches $600,000, this technique is likely to gain popularity as a means of minimizing the total federal estate tax attributable to the estates of both spouses.
In lieu of using a testamentary trust, the testator may desire that some, or the largest possible portion, of the estate avoid probate. The testator may also wish to keep information about personal wealth and his plan of disposition private. In this situation, a properly structured inter vivos trust may be employed. If a revocable inter vivos trust is used, the testator can also observe, and change, the administration of the trust and regain enjoyment of the trust property during his lifetime by properly revoking the trust.
Regardless of the type of trust employed, the settlor/testator should make express provision for the trustee of the trust.(fn1)
An institutional trustee is probably better suited than an individual to provide skilled and efficient administration of the trust. However, the settlor/testator may fear that an institutional trustee will not provide the individualized trust administration necessary to assess accurately the needs and desires of the beneficiaries. This concern may be especially important where the trust instrument provides the trustee with broad discretion in connection with income and/or principal distributions. Also, administration fees may be greater where an institutional trustee, rather than an individual trustee, is appointed.
Therefore, the settlor/testator may be willing to sacrifice a degree of administrative expertise to ensure that the trustee will be closely attuned to the individual needs and desires of the beneficiaries. In this case, the settlor/testator may desire to appoint the life beneficiary trustee based on the conclusion that such a person will be capable of administering the trust and will be in the best position to determine whether discretionary distributions, if any, of trust income and/or principal are necessary or advisable.
In general, a trust is described as a legal relationship whereby the legal and equitable interests in property are separated.(fn2) The trustee holds legal title to the trust property subject...
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