Roles To Which You Might Appoint People To Serve: By Document Category

While there are many common positions to name people for, there are many less common positions that might be helpful to your documents or plan or to your achieving your goals. The responsibilities, liability and other considerations will vary dramatically depending on the role. The following is a listing of many of the roles you might need to appoint people to serve. These have been organized by document type to help you identify the positions to which you might appoint people. Understand that there are other positions for each document; in some instances, your attorney might tailor a role to serve your unique needs. No one will need all of these positions addressed. However, you might benefit from considering the many options available. Also, consider these in the context of the discussions in the paper above, as that might help you make decisions or modify what might be in a “standard” document you are considering.

Financial Power of Attorney

Agent under Financial Power of Attorney. A power of attorney designates a person you name as your agent and gives them authority to handle your legal, financial, and tax matters. The person you name as agent will be responsible for handling your financial and legal matters, e.g., if you become incapacitated. That role, while similar in some ways to an executor or trustee, is distinct. The role of an agent may be limited if you also create and fund a revocable trust to manage your assets. If you have done that, your agent under your power of attorney will be limited as the trustee under your revocable trust will be responsible for the assets in the revocable trust. Most people do not have revocable trusts, but they can be a powerful tool to protect you as you age or if you have a chronic illness. If you do not have a revocable trust, the agent under your power of attorney is even more important for your protection since if you become disabled, that will be the only person to manage your finances. If you do have a revocable trust, you might name the same person as a successor trustee under the revocable trust and as your agent under your power of attorney to avoid conflicts. So, you may have to appoint people under each document and consider whether or not there should be consistency between the people named.

Co-agent. You can name a single person to serve as trustee under your revocable trust, agent under your power of attorney, and executor under your will. Whether the same person is appointed under each document is one consideration. But if you are uncomfortable with the people you are naming, or they are busy, and you are concerned about their ability to handle the responsibilities, you might name two people to serve simultaneously in each position. That can provide a check and balance on each person by the other and a sharing of responsibilities. Some people name co-fiduciaries so they can name all their children to act simultaneously. Each of these considerations may affect the positions you appoint people to, who you appoint and how many people you appoint.

Monitor. Because a financial power of attorney is such a powerful document, perpetrators have used it to commit elder financial abuse. There are many ways to try to reduce that risk. Name co-agents or rely on a funded revocable trust with an institutional trustee. Another approach that you might consider is appointing a person to monitor the actions of the agent you appoint under your power of attorney.

Health Care Documents

Guardian. Some people sign separate guardianship designations indicating who they would want a court to appoint as their guardian if incapacitated and require one to be appointed. Others have that person designated in their health care power of attorney (or health care proxy). That is often done because the person most likely selected for a guardianship designation is the same person you appoint to make health care decisions. When designating your wish for a future guardianship designation, you might designate one person as your guardian. However, it may be feasible to designate separate people responsible for personal versus financial decisions.

Guardian of the Person. This is a person you designated as your wish to be in charge of your personal decisions if you are incapacitated and need a guardian appointed.

Guardian of Property. This is a person you designated as your wish to be in charge of your financial decisions if you are incapacitated and need a guardian appointed.

Health Care Agent. This person is appointed to act under your health care proxy or medical power of attorney document. Those are documents in which you name a person or an agent to make health care decisions if you cannot. Many people sign faith-based health care documents, failing to realize that their existing secular documents may have conflicting appointments. Many states recognize a document called a Physician Order for Life-Sustaining Treatment (“POLST”), which addresses medical decisions if you are terminally ill. If you sign more than one of these documents, you should carefully consider whether the same person is or should be named in each.

HIPAA Agent. A Health Insurance Portability and Accountability Act (“HIPAA”) release is a legal document in which you authorize a person to communicate with physicians and access medical records. In contrast to the health proxy, this is not a power to make medical decisions for you. Should you name the same person in your HIPAA Releases and Health Care Proxy?

Will

Clayton Executor. The executor is the person named to administer your estate (gather assets, pay expenses and distribute the funds remaining, etc.). This person is also referred to as the “personal representative.” A common estate plan for a married couple is to pass assets to a trust for the surviving spouse that qualifies for the marital deduction. That avoids estate tax and can permit the assets to receive an adjustment in tax basis on the second death. However, in many cases it may be better to shift assets instead to a trust that is not included in the surviving spouse’s estate. One technique for doing this is to have a special executor, called a “Clayton” executor after the court case that sanctioned it, have the authority to make an election on your estate’s estate tax return (that means one has to be filed) as to what portion of the estate will qualify for the estate tax marital deduction. The mechanism is structured so that any remaining assets in your estate will pass to the trust that will not be included in the surviving spouse’s estate. This trust is called a “credit shelter trust,” or “family trust,” among other names. Important to your decisions on who to name, the person appointed to be the Clayton executor should probably not be your spouse or other beneficiaries of either trust. So, in addition to naming a “general” executor, you might have to name a different person to serve in this tax-oriented role.

Co-Executor. Many times, perhaps most of the time, a single person is named as the executor to administer your estate. However, that might not be the best option for you, depending on the circumstances. Is the individual named 100% reliable and trustworthy? Sometimes, people feel more comfortable naming two people to serve in a role like this so that each can keep an eye on the other. If you’re struggling to identify someone you can name and cannot think of someone you are entirely comfortable with, perhaps naming two such people might make you more comfortable. The decision is not only about trust. It may be that each person you are considering has different skills. One might be really astute at dealing with financial matters, and the other may have a close relationship with the people you are naming as beneficiaries. So, it may be about finding the right blend of skills not so much about trust. There is another aspect to this that is often overlooked. Will the people you are considering have the time to serve? Sometimes the best candidate to be your executor is so busy that it may be difficult for them to address the responsibilities involved. Naming two people might divide the workload. Another approach is naming a professional trustee or a trust company. If that is done, will they have a personal understanding of the family and others named as beneficiaries? If not, perhaps the combination of an institutional trustee and a personal friend might be best for you.

So, a co-executor is an individual named as an executor in conjunction with another person named to the same role. The key concept is that by making your decision more flexible, you might be more comfortable identifying people to name for this important role.

Estate Protector. In another section, the concept of a “monitor” for your power of attorney was introduced. The monitor can oversea what an agent does under your power of attorney to provide a check and balance. This is similar to a concept discussed in many sections of this paper on a trust protector who can have some oversight responsibility for the trustee of a trust. A similar concept can be used to administer or manage your estate when you die. Your will can name a person to serve as an “Estate Protector,” similar to a trust protector for a trust. While this is not that common, in some cases it may provide the comfort you wish on the various people you are appointing as executor. Also, the estate protector can be given powers to address other issues.

Example: You name a bank or trust company as executor. You have an heir with a drug addiction. The bank or trust company is unwilling to make personal decisions like requiring a drug test. Perhaps that authority and responsibility can be given to the estate protector.

Executor. This is also called a personal representative. This is the person who administers your estate when you die. The executor’s duties may include having the will admitted to probate (filed with the court along with required forms and documents), marshaling or collecting all of your assets, paying estate expenses, filing an income tax return for the estate, filing an estate tax return if required (watch state requirements that may differ), etc. The executor has a role in distributing assets to the beneficiaries or trusts your will creates once the estate is settled (all assets collected and bills paid). Then, the executor’s role concludes.

If you have what is called a pour-over will that pours your estate assets into a revocable trust that then provides for primary distribution, your executor’s role may be less, perhaps significantly so. Many people name the same person as executor and successor trustee on their revocable trust. Others name a family member as executor and a bank or trust company under their revocable trust. Again, there are many options that you can select from to accomplish your personal goals best.

Funeral Agent. Many states permit the appointment of a funeral agent to make funeral decisions. But caution is in order as the agent under many health care proxies is given those powers or a separate document that only serves to appoint a funeral agent may be used instead of providing for this under your will. Again, there are many options and permutations to choose from. One of the reasons to consider stating funeral requests and appointing a funeral agent under your will is that by doing so that confirms that your executor will have the legal authority to pay for the expenses of your funeral. That could be important if the costs are significant and you have any concern that someone might otherwise object.

Example. Your funeral requests include having your body flown to India so that you can be cremated and your ashes disbursed on the Ganges River. You also want your family flown there to attend the rites. Because of the cost of this, you include these wishes in your will. You also note them in your living will so that if your will is not immediately available, everyone will know your wishes.

Guardian. A guardian for you can be addressed in a separate guardianship appointment or perhaps in your health care proxy (medical power of attorney). If you have minor children, appointing a guardian for them should be addressed in your will. If you also are going to have a revocable trust the will may still be the preferable legal document to contain the guardianship appointment. While who you name can be a difficult and important personal decision, there are some points to consider. You might be tempted to name a couple as guardian. That might present legal issues, such as having two people instead of one in that role. There is also a significant personal issue. What if the couple divorces? Which of them would then be guardian? It is probably best to name individuals and not couples. Be sure to name successors in case the person you name is not able to serve. If you are divorced, your nomination of someone as guardian other than your ex-spouse may be negated by the survival of your minor child’s other parent, remarkably if the surviving parent’s rights weren’t terminated or otherwise suspended. Also, consider that if the minor is over a certain age (14 in some states), the child may have the right to request that the court approve a different individual as their guardian.

If the guardian you want to name resides outside the U.S., that is a legal complication for which you should hire an estate planning attorney.

Another issue that arises is concerns over the minor’s money. If you make no provisions, the guardian or even the court may have authority over the funds. Instead, consider creating a trust under your will for minor children (or under your revocable trust). Consider then who to name as trustee of the trust to be in charge of the child’s funds. Should it be the same person you name as guardian? Might it be better to have different people so that there is a check and balance on each of them with then two people advocating for the minor child? Will the two people you name get along?

For developmentally disabled adults, separate guardianship proceedings may be required, not merely an appointment in a will as for minor children.

As with so many decisions about who you name in your estate planning documents, there are nuances and options. If you take the time to evaluate the various approaches you can settle on one that will hopefully provide the best result for your minor child.

Trustee, Testamentary. A trustee is a person appointed, as discussed above in the context of naming a guardian, to manage money for the benefit of others. “Testamentary” merely means that the trustee’s appointment takes effect on your death. So, a testamentary trustee is a trustee named under your will and that trusteeship becomes effective when you pass. A testamentary trust can also be created under your revocable trust and becomes effective only on your death (the general trustee appointment under the revocable trust is effective when you sign it, but other trusts included under that document might be testamentary in that they become effective only after you die. A key difference between a testamentary trust created under your will versus one created under your revocable trust is the court will be involved with the creation of the trust under your will.

Trusts

Adverse Party. This is a tax concept that may be important for more advanced planning. If this concept is relevant to you, it will be yet another person you have to name or appoint in your estate planning documents. This can be illustrated as follows.

Example. You create a trust that benefits your spouse. However, you want that trust to be characterized for income tax purposes as a non-grantor trust. Grantor trusts were discussed earlier and are trusts that are ignored for income tax purposes. While there are advantages to using grantor trusts, there can be advantages to using the opposite type of trust, a non-grantor or “complex” trust. These are trusts that are recognized for income tax purposes. A possible advantage to creating a non-grantor trust is that you might live in a high-tax state, such as New York, California, New Jersey, Massachusetts, etc. By creating a non-grantor trust in a no or low-tax state like Alaska, Nevada, South Dakota, etc. the trust may enable you to avoid high state income taxation. But under federal tax law, if you create a trust that benefits your spouse, it will automatically be treated as a grantor trust, and your state income tax planning goal will not be achievable. However, if an adverse party must approve any distributions to your spouse, the trust may then qualify as a non-grantor trust and you can achieve your income tax savings. Who is an adverse party? It is someone who could realize detriment by authorizing a distribution to your spouse. A simple example is a child of yours who, along with your spouse, is also your beneficiary. Yes, this is complicated but saving state income taxes could be worth the challenge of more complex planning if you live in a high-tax state. If you wish to address this plan, you will have to name a beneficiary of the trust who can also be treated as an adverse party to this plan. Yes, the decisions about who to name in what roles can be much more complicated than what you read online.

Beneficiary. When you name a person to receive benefits under your will, trust, retirement plan, or another asset, they are referred to as your beneficiary. While this paper has not focused largely on other types of appointments, beneficiaries have been mentioned throughout. The most important people to name in your estate plan are beneficiaries, but the people you will name in that manner are usually pretty obvious. The mentions in this paper of beneficiaries have addressed many of the ancillary consequences and considerations of naming people as beneficiaries. For example, if you name a person as both a trustee and a beneficiary, it is quite a common occurrence that raises special tax considerations.

Example. You have tremendous confidence in your oldest son’s financial acumen and stability, but you leave his entire inheritance to him in a trust. In that way, the assets should remain protected if he is ever sued or divorced. Also, barring changes in the tax law, the assets in the trust could remain outside the transfer tax system forever. But since you have so much confidence in him and are not placing his inheritance in trust to restrict him unduly but to help him, you want to name him as trustee of his trust. That will give him substantial control over the inheritance. However, for the inheritance to remain out of his estate for tax purposes and unreachable by creditors, the trust must contain special provisions restricting his right to distribute to himself to only distributions for his health, education, maintenance, and support (“HEMS”).

Another aspect of naming beneficiaries discussed above was naming a “floating” spouse. Rather than your current spouse, a more generic definition is used so that whoever you are married to at a particular time is your spouse. If your current spouse dies or divorces, your next spouse will be a beneficiary. That could be a critical mechanism to provide you with access/benefit from assets in that trust.

Beneficiary, Qualified. There are many aspects of naming beneficiaries, most of which are beyond the scope of this paper. However, to understand whom you should name as trustee and in other positions, understanding aspects of naming beneficiaries can be important. One of the fundamental concepts of a trust is the requirement that the trustee informs beneficiaries of the trust and other key information about the trust. If state law and the trust document permit, the trustee may be able to avoid informing the beneficiaries about the trust. See the discussion above about “Quiet Trusts.” One of the points of discussing the rules about informing beneficiaries is to ensure that you understand some of the many requirements trustees face, as the people you name to serve in that role will need to address those requirements. Also, the requirement of reporting to beneficiaries was discussed to highlight the possibility of naming someone, sometimes referred to as a Designated representative, who can receive notice for the beneficiaries. That way, a responsible person can monitor the trust and know what is occurring by their receiving the notice. Still, beneficiaries too young to receive notice might be intentionally kept uninformed until they mature. A related concept that may also impact your understanding of trustee responsibilities and the naming of a Designated Representative is the concept of Qualified Beneficiaries. Not everyone who may ever benefit from a trust must always be informed about the trust. However, those beneficiaries for whom the law may require that the trustee keep informed may be referred to as “Qualified Beneficiaries.”

The Uniform Trust Code adopted in some form in most states generally requires that a trustee to keep “Qualified Beneficiaries” of a trust “reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” They must be informed of the existence of the trust, the identity of the person creating the trust (settlor), and that they, as beneficiaries, have the right to request a copy of the trust agreement and an annual report of the trust’s administration. A Qualified Beneficiary a person entitled to receive a current distribution from the trust, someone who could receive a distribution if a current beneficiary’s interests ended (e.g., a grandchild if the child beneficiary dies), etc.

Understanding who the beneficiaries are, and what that means to your designating trustees, persons who can receive notice, and other aspects of the trust can have a significant impact on who you name, to what roles, and what they must do.

Charitable Designator. One of the ways to add flexibility to a trust that you create (and that is classified as a grantor trust) is to empower a person to add to the list of trust beneficiaries and charities. If this is done you will have to name a person to hold this power. This is a potentially significant power since if charities are added, the economic interests of the other trust beneficiaries, e.g., your spouse and children, could be diminished. Because such a power would harm beneficiaries, it has to be held by a person who does not act in a fiduciary capacity. The concept of fiduciary responsibilities has been discussed above. But that means that the person named to add charities cannot be a trustee or serve in any other role in your trust that could characterize that person as a fiduciary. If you and your spouse create trusts you hope are respected for estate tax and creditor protection purposes, the two trusts must be sufficiently different. Unfortunately, as with many tax and legal concepts, there are no clear guidelines on what that means. One of the ways that trust agreements can be differentiated is that the trust of one spouse, but not the other, could include a provision giving someone the power to add charitable beneficiaries. The use of this will have an obvious impact on who you name in each trust and to which positions.

Co-Trustee. A trustee is a person appointed to manage and administer a trust for the benefit of the beneficiaries. A co-trustee, similar to a co-agent and co-executor explained elsewhere, appointing two or more trustees may allow you to add a check and balance on each trustee, facilitate trustees sharing the burdens of the role, and blend complementary skills. As with other “co” arrangements, adding co-trustees to your mix of options might enable you to get past an impasse in trying to name people to administer your plan.

Designated Representative. See detailed discussions above concerning “Quiet Trusts” and notice to beneficiaries. A Designated Representative is a person you designate to receive notice that would otherwise be sent to beneficiaries. For example, it might be best that young adult beneficiaries are not given details about a valuable trust that benefits them as that might depress their desire to accomplish their successes. Until they gain more maturity, the Designated Representative can receive notice for them. You will have to obtain advice from an estate and trust attorney about what state law permits (and perhaps you might consider establishing or moving your trust to a state with more flexible rules on this matter), address this in the trust document, and appoint the person to serve in this capacity.

Disclaimant. Power To Disclaim Gift Transfers to Trust. This is a technical legal and tax planning provision that is intended to provide a safety valve so that if a large value transfer is made to an irrevocable trust, what if there is a significant change in the tax laws after the transfer? What if the value of the asset’s changes or your goals change? It may be possible to give one beneficiary a right to disclaim, renounce, or reject the transfer to the trust and have that constitute a disclaimer or reject of the transfer for the entire trust.

Example. You make a gift of a family business to an irrevocable trust out of concerns that the tax laws could be made much harsher in the future. Instead, Congress makes the estate tax more lenient or even repeals it. Your oldest daughter was given the right to be treated as the primary beneficiary of a trust you created and disclaim any transfer to that trust and have her disclaimer treated as if the trust itself disclaimed. If this is done as required under state law and within nine months of the initial transfer (that is what the tax laws require for a valid disclaimer) it will be as if the transfer was never made to the trust. That would permit you to unwind the transfer as if it never happened. That would undo the tax and legal ramifications of the transfer. It effectively gives you the benefit of hindsight for the estate planning you might undertake if this technique is successful. You should review the possible use of such a technique with an estate attorney and then determine who should be designated to have this power.

Distribution Trustee or Advisor. This individual directs the trustee to distribute trust assets to any named beneficiaries. Distributions are a tax-sensitive power, so in many trusts designed to remove assets from an estate or reduce the risk of creditors reaching them, an independent person might be named in this role. You might even choose to vest this power in an independent institutional trustee to enhance the likelihood of achieving your tax goals. Another advantage to naming an institution or professional trustee is the objectivity and process they can bring to determine investments. In traditional trusts, only one trustee was appointed. Modern trust drafting may permit you to bifurcate trustee functions. While more complex, that approach can give you more flexibility to tailor your trust to achieve your objectives.

Drug Testing and Other Personal Matters. You might choose to name a specific person to mandate that a beneficiary submits to drug or other testing in order to receive a distribution. If you name an institutional trustee, some will address these matters; some may not be comfortable doing so. You might also prefer to designate a particular person who may be more knowledgeable of the beneficiary or sensitive to the issues. Again, you can tailor your planning and documents to address your wishes and the needs of the beneficiaries you name.

Investment Trustee or Advisor. Traditional trust drafting named one trustee who handled all trustee functions. As noted in prior discussions, modern trust drafting can facilitate bifurcating trust functions. You can name a separate person in a distinct position from the general trustee to handle trust investments. This role empowers an individual to exercise some or all investment functions. The settlor may grant the investment trustee or advisor general authority over all investments or authority over a specific class of assets, reserving the remaining powers to the general trustee. If the trust instrument creates co-investment trustees, they will act as such, which will mean a bifurcation of the trustee role. If the person acts as an advisor, they will direct the trustee to take certain actions. The prospective fiduciary may have reduced or no liability for following the directions from that advisor, depending on the specifics of the trust instrument and state law.

Loan Designator. This provision has historically been important for income tax planning, but its use has evolved to deemphasize the income tax consequence and focus on new importance for economic reasons. Let’s start with the economic benefit, as that can be reassuring and powerful. If you create an irrevocable trust, you may want a safety valve to access trust assets “just in case” you ever need them. However, you may not be a beneficiary of the trust. While there are mechanisms that might permit you to be a beneficiary of the trust or be added as a beneficiary of the trust, those approaches may create more risk to your plan and potentially complexity and cost. If you are married and your spouse is a beneficiary, that may provide you with some indirect access to benefit from trust assets. But if someone can loan you money from the trust, that might provide you with cash if you need it. Even if you have to pay interest on that loan, and even if you and perhaps eventually your estate may have to repay it, if you have a cash need, it could be important to address that. To accomplish this, the trustee might be able to loan you trust funds. However, if you instead expressly provide a provision in the trust that you can receive a loan that might be more comfortable for you and a better likelihood of receiving funds if needed. But you can go a step further and name a specific person to hold the power to make the trust loan you funds. And if that person is expressly acting in a non-fiduciary capacity, that might be even more reassuring for you. Having the position of the person holding the loan power expressly stated to be in a non-fiduciary capacity means that the person would have no duty of loyalty to the beneficiaries of the trust. That might make it possible for this person to direct funds to you as a loan when the trustee might have a pause in doing so. It is imperative that if the trust does this there is a signed loan document, interest paid, and other indicia of a real loan respected. So, when you are naming positions for your trust, this may be another person you have to appoint. Understanding their role will help you decide who to appoint.

Historically, many trusts created for estate planning were intentionally designed to be characterized as grantor trusts for income tax purposes. If a trust you create can loan you money without adequate security, that power would cause the trust to be treated as a grantor trust for income tax purposes. Many trusts still use this power for this purpose since grantor trust status can be so crucial to the plan. While grantor trust status can, according to most commentators, be assured with a swap power, perhaps a loan provision could still be included, but now more for providing a means for the settlor to access trust principal than for grantor trust characterization. If the estate tax is repealed the settlor might be more comfortable with the planning knowing that there is a means to provide access to trust funds, even if that is as a loan.

In deciding when to designate a person to hold this loan power, consider that the person named may have to report under the Corporate Transparency Act as a beneficial owner if the trust owns interests in entities.

Non-Adverse Party. Certain decisions or mechanisms to be included in a trust might need tax or legal approval from another person for tax or legal reasons. For example, as illustrated in an earlier discussion, assume you intend for your trust to be classified for income tax purposes as a non-grantor or “complex” trust, meaning the trust pays income tax (you, the grantor, do not report trust income on your personal income tax return). But you also want your spouse to be a beneficiary. Your spouse’s status as a beneficiary will cause the trust to be treated as a grantor trust for income tax purposes, which may undermine your intended tax objectives. But, if a “non-adverse party,” such as another person who is a beneficiary of the trust, has to approve any distributions to your spouse, this rule will not apply, and you may be able to accomplish both your objectives: non-grantor trust status and spouse as a beneficiary.

You may not have to designate a person to specifically serve as the non-adverse party, but you will have to be certain that the class of beneficiaries includes a person in that capacity. If the only person who might be non-adverse is a minor or other person who cannot act to approve a distribution to your spouse, you may have to designate a guardian or other person who can act on that minor’s behalf in the trust.

Powerholders holding Powers of Appointment. A power of appointment (“POA”) is a right, granted under a legal instrument such as a will or trust by a person referred to as the “donor” to a person referred to as the “donee” or “powerholder,” which empowers that powerholder to designate who should receive interests in certain property, called the appointive property subject to the POA. The person or persons who are eligible to receive the appointive property is called a “permissible appointee(s).” Although the powerholder can designate those who receive beneficial ownership interests in the appointive property, the powerholder does not own the property. If the powerholder does not exercise the power, the appointive property may pass to a default person indicated in the POA, who is called the “default taker.” That is a lot of jargon.

Example. You create a trust for your niece. The purpose of the trust is to provide for your niece for her lifetime and thereby protect those funds for her in the event she marries, divorces, is sued, or have other issues. Your niece is only 20, is not in, a committed relationship and has no children, and there is no way to predict the future. If she had a family, you would be pleased with her appointing the assets to them on her death. If she doesn’t have a family, you would be pleased with her directing any remaining trust assets to charity. So, the trust you draft gives our niece a power of appointment. She can appoint the assets in the trust to a spouse or descendants or charity. Your niece is the powerholder. The assets in the trust are the appointive property. Her possible future family or selected charities are the permissible appointees. This is a common tool to provide flexibility to your trust and accomplish other goals.

When planning irrevocable trusts, the use of powers of appointment can be really important. You will have to decide who to give powers to, how broad or narrow those powers will be, and which trust assets they will be able to affect. This is yet another layer of important decision-making and naming of people for your plan.

A focus of planning with POAs in the current tax environment is often to obtain a basis adjustment, hopefully, a step-up in basis for appreciated property, on the death of the powerholder who held a GPOA over the property.

Example. You create a trust that holds a stock that is highly appreciated. AI, Inc. was purchased for $1 and is now worth $1 million. You have been helping support an elderly aunt and made her a beneficiary of the trust. She has very modest wealth. If the assets in the trust are included in her estate the AI, Inc. stock will have its tax basis increased from $1 to $1 million and the entire capital gain will disappear. That is a substantial tax savings. Since her estate is modest there should be no estate tax on her death.

This is complicated planning and will require input from an experienced trust and estate attorney. If you pursue this planning, you will have to determine which person or persons you are comfortable giving such power to as that power could subject the trust assets to the person’s creditors, or they might exercise power and direct the assets to be distributed in a manner you do not want.

Powerholder to Add Beneficiary. There are many different applications of powers of appointment. Another application, different from those indicated above, is to give a person (or a committee of people) the power to add you back as a beneficiary of a trust you created.

Example. You are creating a trust to benefit your spouse and children, nieces and nephews, or other persons. You do not think you will reasonably have any need to access the assets in the trust, but should you, you would like a mechanism to do so. So, your attorney drafts the trust, giving your college roommate, who you remain close to, the power to add as beneficiaries of the trust any person who is a descendant of your maternal grandmother. That class of beneficiaries includes you. In this way, you can be added back and benefit from trust assets if necessary.

This mechanism is referred to by various names, including a “hybrid DAPT” with “DAPT” standing for domestic asset protection trust. The trust should be formed in one of the states that permit self-settled trusts. A self-settled trust is a trust for which the person creating the trust can be a beneficiary, and the trust assets may still remain outside their estate for tax and creditor purposes. If you reside in a state that does not permit these trusts, some advisers view it as risky to create a DAPT in a state that does. They might view a hybrid DAPT as less risky until you are added back as a beneficiary. Designating who will hold the power is a major decision as your financial security could be in that person’s hands. Who would you feel comfortable naming?

Powerholder to Appoint Trust Assets (SPAT). Another mechanism that has an effect similar to the hybrid DAPT discussed above is referred to as a Special Power of Appointment Trust (“SPAT”). However, because you can never be a beneficiary of the SPAT (as you could with a hybrid DAPT), it may be a safer approach to preserving your access to trust assets. In a SPAT an individual you name can appoint assets from the trust to a class of individuals (e.g., descendants of your grandparents), which includes you). This power could be held by a committee and not just one person. You could require unanimous consent of the committee, or only one committee member to approve the payment. This is a way that might allow you to benefit from the assets in the trust without becoming a beneficiary of the trust. This is a “non-fiduciary” power. This means anyone you name in the trust as a trustee or the Trust Protector (if the Trust Protector is serving in a fiduciary capacity) cannot also serve in this position of holding the SPAT power. The person holding this powerful and important right must be designated by you. You must determine if you will name a successor and whether you want to name a committee or just one person to act.

Substitutor. There is another position that can be included in trusts that are to be characterized as “grantor” for income tax purposes (i.e., the trust income is reported on your income tax return instead of the trust’s income tax return). This power, in fact, is one of the most commonly used mechanisms to make a trust a grantor trust. It is called a swap power or power of substitution. The person holding this power is sometimes called a “substitutor.” This person, who may be the settlor who created the trust (e.g., you), or another person. This is the right or power to exchange or “swap” assets of the trust for assets of equivalent value. This can be a powerful mechanism to move assets between you personally and the trust if it becomes advantageous, or merely desired, to hold an asset personally that is in the trust, or vice versa. The common application of this technique is to swap highly appreciated trust assets back into your estate so that on your death those assets will qualify for an adjustment (step-up) in income tax basis. Assets in an irrevocable trust do not benefit from a basis adjustment on your death. Assets in your estate will qualify for the adjustment. So being able to move assets between you and an irrevocable trust you created can be a powerful tax planning tool. For example, if a capital gains tax on death is enacted the swap power may be used in the opposite manner than it has generally be envisioned, namely, to move appreciated assets out of your estate where they might be subjected to a capital gains tax on death into the trust where perhaps they may not be. Provisions should be added to your durable power of attorney to address this power in the event of disability. If you created the trust and wish to serve in this role you can do so. But even if you do you should name a successor that can hold this power if you do not have the capacity to exercise it. In some situations, you might choose to name a different person to hold this power from inception. So, this is another complex legal and tax power that can add valuable flexibility to your trust plan, but you need to designate the people to serve in this role.

Swap Powerholder. See “Substitutor.”

Trustee. A trustee is the person charged with managing and administering a trust you create. You might name it yourself if it is for a revocable trust you create. However, if you have aging, health or other issues you might name a co-trustee to serve with you, or even others to serve if it may be too difficult for you. It would be best if you were not the trustee for an irrevocable trust that you are creating to move assets outside your estate and outside of the reach of your creditors. Who is advisable to name will depend on many considerations discussed throughout this paper. For example, if you wish to create a trust in a state (jurisdiction) with better tax or trust laws, you must name someone in that jurisdiction. If you do not have a close and trusted person to name, you might choose to name a trust company or bank in that state so that your trust can avail itself of the laws in that state. If a parent or third party creates a trust to benefit you (or you and others such as your children), you can be a trustee, but your right to distribute trust income or assets to yourself or for your benefit has to be limited to no more than those payments necessary to maintain your health, education, maintenance, and support (“HEMS”). If you can distribute more than that, all of the trust assets may be reached by your creditors and included in your estate for estate tax purposes. The concept of “HEMS” was discussed earlier. Also, see the discussion of “Co-Trustee” above. Who you choose to name may depend on the powers you give the trustee, and what precautionary measures you might take, as discussed throughout this paper.

Trustee, Administrative and General. A traditional or typical trust had named only one category of trustee. That trustee had all powers given to trustees in the trust. If there were co-trustees, they would share all those powers. Modern trusts more commonly bifurcate trustee functions into different roles to tailor the trustee role to serve your objectives better. For example, an institutional administrative and general trustee may be designated. This position will hold all trustee powers in the governing instrument that have not been allocated to other trustees. For example, if the trust names a trust protector and investment trustee, the general and administrative trustee will have all trust authority not given to those other two positions. Naming an administrative trustee may permit you to choose to have the laws of any state apply where the trustee is that your name while continuing to have flexibility and control over trust investments through the bifurcated trustee function of investment trustee or investment advisor.

Trustee, Investment – Art. The concept of dividing or bifurcating trustee roles was explained in the discussion of “Trustee, Administrative and General.” In that discussion, a general and administrative trustee held all trustee functions, and investment functions were separated out and given to an investment trustee or investment advisor. The slicing and dicing of investment powers can be further divided depending on your objectives and circumstances. If the trust holds an extensive art collection, you might appoint a special trustee or trust advisor to make decisions for artwork.

Trustee, Distributions. The trust could name a person or group of persons acting as a committee to be responsible for trust distributions. If the distribution powers of the trustee are not carved out for a distribution trustee, they can be held by the general and administrative trustee. If you are going to carve out a separate role for a distribution trustee, consider that the power to distribute is a tax-sensitive power that could cause trust assets to be included in the powerholder’s estate if not correctly handled. Your trust plan may be safer in terms of accomplishing trust goals of removing trust assets from your estate and the estate of the people holding distribution rights if, instead, those powers are held by an independent or institutional trustee.

Trustee, – Insurance. It might be advisable to bifurcate the investment trustee provision into several investment trustee positions. A person could be designated to be responsible for the life insurance decisions of the trust. This person should not be the insured. By providing a separate person to be responsible for insurance decisions and including prohibitions against the settlor/insured being involved in these decisions, the trust can hold both life insurance and other assets. Some of the advantages of this include the ability to use a single trust instead to hold business interests and life insurance instead of multiple trusts and the ability to use income generated by trust investments to pay for life insurance premiums. If a new trust is created to integrate these characteristics, review existing insurance trusts to determine if they can be decanted (merged) into this new trust to simplify planning. The Insurance Trustee has the authority to purchase life insurance on behalf of the trust and take any actions regarding that life insurance. This power will be held in a fiduciary capacity. Individuals serving in other trustee positions can also serve in this trustee position.

Trustee, Investment. This position has been called by a variety of names, including “investment advisor,” “trust protector,” and so forth. A person could be designated to be responsible for investment decisions of the trust. This could include investments of securities and business and real estate interests transferred to the trust (e.g., a closely held business or rental real estate). The settlor might serve in this role but caution is in order. If the trust owns stock in a closely held business, the trust’s objectives might be better served by proscribing the settlor from voting corporate stock. In some trusts, it might be advantageous to bifurcate the investment trustee provision and provide for a separate trustee to manage marketable securities, which might be the institutional trustee serving, and an investment trustee, which may be a family member, to be responsible for family business or other private equity interests.

Trustee, Investment – Marketable Securities. As discussed above, the trustee function can be divided into various roles to better accomplish your goals, protect tax goals, save fees, etc. How you divide these roles will depend on the persons and institutions you wish to appoint, the nature of your assets, etc. For example, the investment role could be subdivided into several trustee roles. If you retain an institutional trustee, you might carve out a separate investment role for marketable securities that the institutional trustee will handle and separate private equity, e.g., a family business, that you or another family member or business partner may serve in. This may also be helpful to your succession plan.

Trustee, Investment – Non-Marketable or Private Equity. As discussed under “Trustee, Investment – Marketable Securities,” you can divide the trustee role into various roles and sub-roles. For those owning business or investment/rental real estate interests, it is often helpful to designate a special person to handle decisions as to those assets. In that way, you might name the general trustee as an expert in trust administration and the person in charge of making decisions for business or real estate assets as an expert in those matters. You can also name a group of people to serve on a committee as the investment trustee or advisor role. In some instances, you can name an entity to serve in this role and then appoint officers or managers for the entity. In that way, you might create an entity in a state with more favorable laws and try to insulate the people in a less beneficial jurisdiction from serving directly.

Trustee, Successor. You will likely have to name someone to serve as a trustee or successor trustee, replacing the initial named trustee after they can or will no longer serve. In that capacity, the fiduciary might take over the management of trust assets and affairs if the initial trustee can no longer handle those matters. That may be years or decades after the trust is created. One of the more challenging aspects of serving as a successor trustee in a revocable or irrevocable trust may be transitioning from you as the initial trustee to the fiduciary as the successor. The steps and issues will depend on what the trust document stipulates concerning when and how the fiduciary may assume their role. Further, the complexity of passing the trustee position to the successor trustee may depend on the nature of the resignation.

In the context of a revocable trust, you may name yourself as the initial trustee. You may either voluntarily resign (e.g., you realize that because of your advancing age or declining health, you should resign the role before you cannot do so) the role or be ousted from the role once you no longer have the capacity to resign. If you are prudent and realize that you no longer can complete the duties the role requires, you might sign a resignation letter while still well enough to do so, thereby allowing the successor trustee to assume the role of trustee with relative ease. If you continue to serve until you no longer have the capacity to resign the successor trustee might then have to obtain documentation from your physicians confirming he no longer can manage his own affairs. That is not always easy to obtain. On your passing, trust assets may pass to one or more trusts for your heirs, and the trustee may be named trustee of those continuing trusts.

Trust Protector. The trust protector is a more modern role that can be quite important to administrating the trust and providing a check and balance on the trustee. Depending on the terms of the position (as it can be handled very differently in different trusts), this role can provide significant flexibility. A trust protector is a person, other than the trustee or a beneficiary, who holds power over some aspect of a trust. The role of trust protector typically gives the named individual specified powers, such as demanding an accounting from the trustee, removing and replacing a trustee, and changing the law and place of administration of the trust (e.g., to a new state with more favorable income tax rules), etc. The protector can be appointed to act in either a fiduciary capacity or not, depending on state law and the trust document. The trust protector may be given other powers such as correcting scrivener’s errors in the trust, modifying administrative provisions, the power to restricting or eliminating the right of the Trustee to use the income of the trust to pay life insurance premiums on the life of the grantor to facilitate turning off grantor trust status if that becomes desirable, and other powers depending on the circumstances and goals. This power should not be held by someone related to or subordinate to you or your spouse. Who would you appoint? How many different defined trust protector roles will you have and will you appoint different persons to some or each?

Trust Protector, LGBTQ. The concept of a “Trust Protector” was discussed above. That discussion explained that different types of powers and even trust protector roles can be designated depending on your goals and circumstances. The tailoring of trust protector positions can be even more specialized and detailed if helpful to your circumstances and goals. For example, a special Trust Advisor could be appointed to deal with the circumstances of an LGBTQ heir. You could name a special limited trust protector, referred to below as a “Special Trust Advisor,” to address a range of issues, such as determining who is a child or heir (does the state law definition of child include one born through surrogacy?), whether someone who transitions still receives a particular bequest (a will leaves a watch to “my son Tom” but Tom transitions, does the bequest lapse?), etc. The idea is to name a person or perhaps an organization or entity (e.g., the law firm that drafted documents and is intimately familiar with your wishes) to act in a non-fiduciary capacity to the extent permitted under state law. Expressly addressing, in the powers granted to this Special Trust Advisor, those matters specific to the LGBTQ community may be a clearer way to provide the appropriate authority to address some of the common issues. Of course, if the drafting attorney knows of concerns particular to you or your family, those should be addressed more specifically in the provisions of the document. However, in many situations, the particular concerns may not be known at the time the document is drafted, and it will be prudent to add provisions allowing flexibility in addressing matters that arise in the future.

Trust Protector, Sharia Law. A special trust protector could be appointed and also given a limited power of appointment (“LPOA”) to modify the bequests and or document for compliance with Sharia law. This person could be given the right to change governing law and situs to avoid anti-Sharia legislation and protect the intended Sharia dispositive plan. This person could be authorized to interpret questions of religious law, resolve disputes pertaining to the eligibility of a beneficiary to inherit, or add or remove a beneficiary can provide a private and efficient means of addressing some of the issues that may arise without court intervention.

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