Can a trust beneficiary also serve as trustee?
Key takeaway
A trust beneficiary may serve as trustee, but the scope of the beneficiary-trustee's distribution power matters. Colorado permits a beneficiary-trustee to make discretionary distributions for personal benefit only under an ascertainable standard. Other rules address whether a trust remains valid when one person is both trustee and beneficiary, and the Kansas and West Virginia provisions differ in how they state that rule.
Personal distributions may be limited by a standard
Colorado defines that standard by reference to health, education, support or maintenance within the federal tax provisions. The rule concerns discretionary distributions to the trustee personally.
Trustee and beneficiary status can coexist
Kansas requires a trustee to have duties to perform and bars the same person from being the sole trustee and sole beneficiary. Kansas treats a beneficiary as definite if ascertainable now or in the future, subject to the rule against perpetuities.
West Virginia states that a trust is not invalid or terminated, and title does not merge, merely because the trustees are the same people as the beneficiaries. The provision describes the effect of matching trustee and beneficiary roles without stating that a beneficiary-trustee may make personal discretionary distributions without limits.
Distribution powers can affect estate inclusion
A beneficiary's discretionary power to distribute trust assets to themselves without an ascertainable standard is described as a general power of appointment that causes estate inclusion.
Trust terms shape the effect of beneficiary control
Practitioners describe beneficiary control of a dynasty trust as affecting creditor protection and potentially carrying income or estate tax consequences depending on the trust terms and the beneficiary's powers.