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Can a Trustee also be a Beneficiary in a California Trust?

Posted by Jim Filippi | Apr 20, 2020 | 0 Comments

When a person creates a trust, they are referred to as the trust grantor.  A grantor may set up their trust for an infinite number of reasons.  This is what makes a trust so exciting because it can work to accomplish nearly every goal you have with your estate.  It can be used as a will substitute to help your estate avoid probate court, it can be used to care for minor children, or those with special needs, it can be used to provide for a surviving spouse, it can be used to benefit a charity, and an infinite number of other possibilities, only limited by the imagination of the grantor.  A trust brings flexibility in how you manage and distribute your estate when you become incapacitated, or when you pass on.  This brings an incredible level of comfort knowing your affairs will be handled in the manner you desire.

A trust created here in Rocklin and Roseville is typically written under the laws of California, unless for some reason you have chosen another state to be the situs, or the place where legal jurisdiction will belong.  This means that the laws of the State of California will govern the trust you establish. 

The short answer to the topic question is yes, in California, a trustee can also be a beneficiary, but there are several serious concerns you need to be aware of to ensure your trust doesn't become legally invalid.  To truly understand how this can go wrong, we have to dive into a little property law.    

I discussed this in a recent video clip (April 16, 2020 - Difference Between a Trustee and Beneficiary - Link Here), but I will briefly summarize.  When you own a property interest, there are two types of title involved, legal title and equitable title.  Having legal title means you are the official owner of record for the property, meaning you can do with the property interest whatever the law allows.  You are the “owner” in the eyes of the law.  Equitable title means you have the right to receive the benefits of the property interest and sometimes means you have the right to legal title at some point in the future.  When you own property you typically hold both legal and equitable title, except for when they have been divided for one reason or another, like a trust. 

In creating the trust, the grantor has made a decision to split the legal and equitable title into two parts.  The trustee will hold the legal title and the beneficiary will hold the equitable title.  This division is what makes a trust legally valid.  Without the division, the trust will no longer be legally effective.

Under the doctrine of merger, if the sole trustee and the sole beneficiary are occupied by the same person, there is no division of property interests between legal and equitable title.  Therefore, this would make the trust legally invalid because the two types of title have “merged”.  This makes one must wonder, how is it I can set up a trust, but not lose my current property interests in my estate.   

When a grantor sets up a trust, they designate their initial trustee and initial beneficiary in the trust agreement.  If the trust is an intervivos trust, or living trust, the grantor is often both the initial trustee and the initial beneficiary, which as we mentioned, brings up the issue of the merger doctrine and the possible invalidity of the trust. 

To get around this issue, it is imperative you designate proper successor trustees and proper successor beneficiaries, but not necessarily in that order.  A trust is still valid even without a designated trustee since a court of competent jurisdiction can designate someone to serve in this role. 

What a court can't usually do is designate a beneficiary.  This is why it is extremely important to designate a proper and valid successor beneficiary.  Without one, your trust is likely not going to be legally effective because of merger, as the legal and equitable title interests have not been divided between the grantor and someone else. 

This is just another reason why drafting a trust agreement with a professional is vitally important to ensuring your estate plan functions the way you intend it to function.  It is also a great idea to have an already existing trust reviewed to ensure it meets the same standard. 

Today is a great time to give us a call or send us an email to schedule a consultation.

About the Author

Jim Filippi

Jim Filippi, Esq. Principal Attorney Attorney Jim Filippi is the founder and principal attorney for the Filippi Law Firm.  He is a native of Northern California where he was born and raised. Jim has an extensive educational background, graduating with the following degrees: Juris Doctor (JD...

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