Can a Trust Be Held by Another Trust?
Trusts hold property such as cash, real estate and jewelry. A trust is a relationship, not a piece of property; accordingly, a trust may not hold another trust. If you want to change the arrangement concerning your assets, consider the flexibility that various types of trusts have to offer.
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Trust Basics
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Unlike real estate or jewelry, a trust isn't a piece of property; it's a relationship that generally involves three parties, the grantor, trustee and beneficiary. The grantor--sometimes called the settlor, trustor or creator--creates the trust. Creating a trust generally involves transferring your asset's ownership to another party, called the trustee. The trustee's job is to make decisions about the property that serve the best interest of the beneficiaries, that is, the parties you created the trust for. The trustee becomes a fiduciary when you create a trust, meaning that the law holds him to high ethical standards concerning the property in the trust.
Living Trust
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You can't put one trust into another trust; but, if you have a revocable living trust, you can take the property from one trust and put it into another trust. One of the two primary types of trusts is the living trust. As the name suggests, a living trust is one that takes effect while you're still alive. You have two general sub-types of living trusts, the revocable and irrevocable living trusts. With the revocable trust, you maintain control over the trust. You generally can change the terms or revoke the trust at will. With the irrevocable trust, however, your power to change the trust ceases to exist. You must obtain the beneficiaries' permission to make changes such as moving property out of the trust.
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Testamentary Trust
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Even if you can’t put one trust into another trust, if you have a testamentary trust, you can revoke it and move the property into another trust. A testamentary trust is the second major category of trusts and doesn't become effective until you die. It's created as part of your will; and, at first glance, it may seem no different from a will because it leaves instructions for what to do with your property when you pass away. However, it's distinguishable from a will because it focuses on specific pieces of property rather than everything you own.
Taxes
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You may be interested in merging your trust accounts because you want to take advantage of the tax benefits associated with another type of trust. When deciding which step to take next, be mindful that, as a general rule, the more control you have over the trust, the more likely the IRS is to tax you on income the trust generates. The Internal Revenue Code calls trusts where the grantor retains control of the assets, grantor trusts. According to the IRS, all revocable trusts are grantor trusts.
Warning
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State law governs trust accounts. Consult an attorney in your state who is knowledgeable about wills, trusts and estates.
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