Trust Planning

Trust Planning

Estate Planning and Wealth Management

Trustees of Personal Trusts

> This is Part 2...Go back to start of Quick Guide to Personal Trusts

The trustees make the decisions on how the trust should be run. According to the Prudent Investor Act (as opposed to, and as an improvement on, the Prudent Man Act) a trustee may delegate to independent experts some of the specific tasks of the management of the trust, such as the decisions on how to manage the finances effectively over time. The trustees, as we have said, need to be independent of the beneficiaries. This is not true in all contexts. But in order for the IRS to consider your trust as not a part of your taxable assets, you have to have irrevocably created a trust which is not cancellable or controlled by you (other than in your trust agreement or trust formation document). In the case of a living trust you are usually your own trustee, but for annual income tax purposes this trust is basically considered not to exist – so you pay taxes on your assets as if they were not in a trust (because, at any instant, you can revoke this trust). Beneficiaries can, in certain situations, in a legally well-crafted trust, be the trustees of their own trust.

Coming back to our discussion of corporations, there are confusing issues with the separation of beneficiaries and trustees. Trustees are not meant to be self-dealing and self-serving. We will see that this theme of “a corporation as a trust” will come up on other pages when we look into having a corporation as trustee of a personal trust. In addition, with a corporation-as-trust, we have to ask, “Who are the beneficiaries: the executive officers, the shareholders, the clients of the corporation, or society?” This will also become a theme important to your choice of trustee.

Back to Quick Guide to Trusts

On to Part 3: What Laws Govern Trusts?