Grantor as Trustee & Beneficiary

EPTL 7-1.1 states that trust interests do not merge, even if the grantor is the sole trustee and holds the “present beneficial interest,” but one or more other persons must hold a beneficial interest:

EPTL 7-1.1 When trust interests not to merge

A trust is not merged or invalid because a person, including but not limited to the creator of the trust, is or may become the sole trustee and the sole holder of the present beneficial interest therein, provided that one or more other persons hold a beneficial interest therein, whether such interest be vested or contingent, present or future, and whether created by express provision of the instrument or as a result of reversion to the creator’s estate.

We can draw several conclusions from EPTL 7-1.1:

(1) The grantor can be a beneficiary. The grantor is typically a beneficiary of a revocable trust. Grantor sometimes retain the income interest in a Medicaid Asset Protection Trust.

(2) The grantor cannot be the only beneficiary of a trust; someone else must have a beneficial interest.

(3) The grantor can be the sole beneficiary of a trust. The grantor is typically the trustee of a revocable trust. But note that the grantor should name a successor trustee in the event the grantor becomes incapacitated.

(4) The grantor can be the sole trustee and a beneficiary.

(5) The grantor can be the sole trustee and the sole beneficiary.

  • Tax consequences?
  • Asset protection consequences?