When leaving an inheritance in a trust for beneficiaries’ lifetime, the money or property you leave them can be protected from their own creditors, lawsuits, bankruptcy, and even divorce. When using this option, however, you must consider who the trustee of that trust will be during the beneficiary’s life.
Categorically Speaking There Are Only Three Options
The first option would be to name a trustee who is not also the beneficiary. The second option would be to name the beneficiary as co-trustee with another independent person. The third option would be to name the beneficiary as their own trustee.
Naming an independent trustee to manage the property for another person puts a layer of access in between the beneficiary and the trust property. The beneficiary will have to communicate with the trustee in order to withdraw funds. It may be easier for the beneficiary and trustee to come up with an agreement for a monthly transfer of a specific amount or for the trustee to pay certain bills or to buy certain items as the expense comes up on behalf of the beneficiary. When the independent trustee is a licensed fiduciary or other professional, the fees that they would charge to provide the service can often seem to be a significant disadvantage. If a reputable professional is chosen however, our experience is that the accountability and professional management of the trust brings significant added value and transparency to how the trust is being managed. When that independent trustee is a family member, it often creates strained relationships between that family member and the beneficiary. The family member trustee also may not be acquainted with the high level of detail that is required in managing and accounting the trust that they ultimately responsible for.
Bringing in a co-trustee with a beneficiary might be a good blend of bringing two perspectives into the management of a trust in Arizona. In cases where we name co-trustees, the beneficiary and the independent trustee are both jointly responsible for the proper management of the trust. Usually, this means two signatures are required for withdrawing or transferring property out of the trust. Sometimes that can be a cumbersome administrative requirement. In these circumstances, the professional trustee will usually take on the responsibilities of maintaining the financial records including accounting, reports, and taxes. The beneficiary who is acting as the other co-trustee is usually acting in a role to bring a family perspective to the management of the trust in Arizona.
The final option is to name the beneficiary as his or her own trustee serving alone.
Arizona Law Allows A Beneficiary To Act As Their Own Trustee
The beneficiary in this role only answers to themselves while they are acting as trustee. Sometimes this can look like there is no barrier for them to waste or spoil all of the trust funds, but in our experience what we see is that sitting in the role of trustee over your own funds which still carry the name of their parents’ trust creates enough of an emotional barrier to wasting the inheritance. More practically, this arrangement still protects the inheritance from being lost to the beneficiaries, creditors, lawsuits, bankruptcy, and even a divorcing spouse.
