Friday, September 30, 2011
Settlors typically want to keep control over the trusts they create, especially when the settler is a parent creating a trust for the benefit of a child. Since a trust must be irrevocable for estate tax and asset protection planning purposes, many settlers fear that this control is lost. However, a list of ways settlors can retain (some) control of the trust are below:
- The Settlor can change the trustee. Rev. Rul. 95-58 state that a settlor’s right to remove the trustee and name a new trustee does not result in estate tax inclusion if the new trustee is not “related or subordinate.”
- Section 411 of the Uniform Trust Code allows a court to modify an irrevocable trust if the settler and all beneficiaries petition to court to do so.
- A settler can name one or more protectors as a means of modifying the trust (however, only a few states have codified provisions regarding Protectors). Protector powers generally include the ability to change the manner of distribution and allocations among beneficiaries.
- A settler can keep substantial control by creating a single member LLC with an irrevocable trust as a member and the settler as the non-member manager.
Other options that allow the settler to keep control over trust assets include private trust companies, grantor trust flip switches, powers of appointment, decanting powers, charitable foundations, and extended distributions clauses.
See Owen Kaye and Bruce Givner, How Do Parents Keep Control: Irrevocable Trusts, Aug. 24, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.