Can Same Person Be Beneficiary And Sole Trustee of Irrevocable Trust?

Jon Alper Estate Planning

Our client wanted to serve as trustee of an irrevocable trust created for his benefit. The client’s general attorney cautioned him that he could not serve simultaneously as a beneficiary and as a trustee, and that if he did occupy both positions the trust would automatically dissolve because of the legal “doctrine of merger.”

The client’s wife proposed to create an irrevocable trust for the benefit of the client husband. The trust agreement would provide that upon the client’s death any property remaining in the trust would pass to their children. The wife would fund the trust with her separately owned property.

In a trust agreement, the trustee holds legal title to trust property and the beneficiary holds equitable rights in trust property. The doctrine of merger means that if a single person is simultaneously the trustee and the person holding the complete beneficial interest that the trustee’s legal title and the beneficiary’s equitable merge into a single interest and the trust relationship dissolves. The client’s other attorney concluded that the doctrine of merger required there be a co-trustee, or independent trustee, instead of the client being both trustee and beneficiary.

But, in most estate planning living trust agreements established for married trustmakers provide that upon the first spouse’s death the trust assets are held in a trust for the surviving spouse and the surviving spouse is trustee of their own trust. Does the typical marital trust for the surviving spouse fail because of the doctrine of merger when the surviving spouse is beneficiary and trustee of the marital trust?

The answer is that the doctrine of merger applies only where the trustee also owns the complete present and future beneficial interest in trust property. When a trust agreement shifts the beneficial interest to successor beneficiaries upon the initial beneficiary’s death (such as, to the children after the death of the surviving spouse) there are other individuals with a future and contingent beneficial interest. In that case, the initial beneficiary does not hold the complete present and future beneficial interest and the doctrine of merger does not apply.

Therefore, my client could serve a trustee of his wife’s trust established for his benefit because the trust agreement named his children as future beneficiaries.

For a more complete discussion of this topic you may read this Florida case.

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