Any individual may be a trustee and a beneficiary of a trust assuming that the trust agreement names other lifetime beneficiaries or successor beneficiaries after the death of the initial beneficiaries.
For example, suppose a client wanted to serve as trustee of an irrevocable trust created for his benefit. The client’s general attorney cautioned him that he could not serve simultaneously as a beneficiary and as a trustee, and that if he did occupy both positions the trust would automatically dissolve because of the legal “doctrine of merger.”
What is “doctrine of merger”? The doctrine of merger means that if a single person is simultaneously the trustee and the person holding the complete beneficial interest that the trustee’s legal title and the beneficiary’s equitable merge into a single interest and the trust relationship dissolves and becomes moot. In a typical trust agreement, the trustee holds legal title to trust property and the beneficiary holds equitable rights in trust property. Under this doctrine the trustmaker, or settlor, cannot serve as trustee and be a trust beneficiary because his interests as trustee and beneficiary would “merge” and the trust would not be a legal entity that is distinguished from the trustmaker individually.
In this particular case, the client’s wife proposed to create an irrevocable trust for the benefit of the client husband. The trust agreement would provide that upon the client’s ( husband’s) death any property remaining in the trust being both trustee and beneficiary.
But, in most estate planning living trust agreements established for married trustmakers provide that upon the first spouse’s death the trust assets are held in a trust for the surviving spouse and the surviving spouse is trustee of their own trust. Does the typical marital trust for the surviving spouse fail because of the doctrine of merger when the surviving spouse is beneficiary and trustee of the marital trust? If true, then the majority of living trust based estate plans would be questionable because the same people initially serve as trustee and beneficiaries of their own living trusts.
The answer is that the doctrine of merger applies only where the trustee also owns the complete present and future beneficial interest in trust property. When a trust agreement shifts the beneficial interest to successor beneficiaries upon the initial beneficiary’s death (such as, to the children after the death of the surviving spouse) there are other individuals with a future and contingent beneficial interest. In that case, the initial beneficiary does not hold the complete present and future beneficial interest and the doctrine of merger does not apply.
For a more complete discussion of this topic you may read this Florida case.
Last updated on October 8, 2020