Can grantor be trustee of irrevocable trust?

The grantor of an irrevocable trust can also act as its trustee, but there are major limitations and considerations that must be taken into account.

With an irrevocable trust, the grantor loses ownership and control over whatever assets he has put into the trust. In this case, the grantor acts as a trustee and maintains a limited level of control in the management of the assets; however, this may cause certain problems, especially those related to taxes and asset protection.

Tax Consequences: When the grantor acts as a trustee and retains too much control, the IRS might view the trust as a "grantor trust" for tax purposes. That would amount to the income and the assets of the trust remaining taxable as part of the grantor's personal income, at the expense of some tax benefits commonly associated with an irrevocable trust.

Asset Protection: An irrevocable trust is primarily used to provide protection against creditors or litigations. In cases where the grantor happens to be the trustee, the courts may rule that he still retains control over the assets, therefore reducing the amount of protection given by the trust.

Estate Planning: For estate tax purposes, if the grantor retains too much control, the assets of the trust may be included in the grantor's taxable estate, defeating the estate planning objectives of an irrevocable trust.

One Pacific Trust suggests that the trustee must be different from the grantor for maximum asset protection, tax savings, and estate planning benefits.