Can a Beneficiary Be the Sole Trustee? How It Affects HEMS and Creditor Protection
One of the most misunderstood but critically important areas of trust law involves the roles of trustees and beneficiaries—especially when they’re the same person.
Can a beneficiary be their own trustee?
Yes.
Should they be?
Sometimes.
Does it affect how HEMS works?
Absolutely.
And what about creditor protection?
In this blog, we’ll break down the risks, rewards, and rules involved when a beneficiary is also the sole trustee of a trust—particularly when distributions are governed by the HEMS standard (Health, Education, Maintenance, and Support).
We’ll explore:
- What happens legally and practically in this setup
- How it affects discretionary distributions
- Whether creditors can get access
- IRS and estate tax implications
- Drafting tips to protect both your assets and your intent
⚖️ Roles in a Trust: Trustee vs. Beneficiary
Let’s define the basics:
- The trustee is the person or institution responsible for managing trust assets according to the terms of the trust.
- The beneficiary is the person for whose benefit the trust exists—usually the one receiving distributions.
In many family trusts, especially revocable living trusts, the grantor, trustee, and beneficiary might all be the same person during the grantor’s lifetime. That’s fine because revocable trusts offer no asset protection anyway.
But things get more complex with irrevocable trusts or when trusts are designed for asset protection, estate tax minimization, or multi-generational wealth preservation.
🔄 Can a Beneficiary Be the Sole Trustee?
Legally, yes—in most states (including Texas), a beneficiary can serve as the sole trustee of their own trust. However, doing so may reduce or eliminate some of the core protections and benefits that people seek when creating a trust.
Specifically:
- The trust may lose creditor protection
- The trust assets may be pulled into the beneficiary’s estate for estate tax
- The trustee-beneficiary may be forced to distribute funds, even if it’s not wise
How much is lost depends on two things:
- Whether the trust limits distributions to the HEMS standard
- How discretionary those distributions are
🧠 HEMS Explained Again—Quick Refresher
HEMS stands for:
- Health – medical and mental health expenses
- Education – tuition, books, room and board
- Maintenance – housing, food, transportation
- Support – daily living and lifestyle support consistent with the beneficiary’s accustomed standard of living
When a trustee is given the power to distribute funds “as necessary for the beneficiary’s HEMS,” it provides an ascertainable standard—a legal threshold that creates both a guidepost and protection.
But if the trustee is also the beneficiary… can they just write themselves a check?
🧯 Problem #1: Loss of Creditor Protection
🔐 Why Trusts Usually Protect from Creditors
Normally, an irrevocable trust with an independent trustee and a HEMS standard protects assets from:
- Credit card companies
- Lawsuits
- Divorce settlements
- Business liability
Why? Because the trustee holds legal title, not the beneficiary. The beneficiary can’t force distributions beyond the HEMS standard, so creditors can’t either.
🚫 What Happens If the Beneficiary Is Also the Sole Trustee?
In that case, the courts may say:
“If you can distribute trust assets to yourself at will—even if limited to HEMS—you effectively own the assets.”
And if you own them, then your creditors can reach them.
⚖️ Real Case Example: Shelley v. Shelley (Texas)
In this case, the court ruled that a beneficiary who was also a trustee with significant discretion could not shield trust assets from creditors, even though distributions were nominally limited to HEMS.
The logic: If you control the faucet, you control the flow.
📌 Summary:
- If someone is both beneficiary and trustee, courts may pierce the trust and allow creditors to seize assets.
- The HEMS standard helps, but it’s not bulletproof.
💀 Problem #2: Estate Tax Inclusion
Under IRS rules, a trust intended to avoid estate tax exposure must remove control from the grantor and beneficiary. But if the beneficiary is the trustee, and they have too much discretion—even under a HEMS standard—the IRS may pull the assets back into the estate for estate tax purposes.
🧾 Code Section Reference:
- IRC §2041 deals with general powers of appointment.
- If a person can use trust assets for their own benefit (beyond HEMS or with broad discretion), those assets may potentially be included in their taxable estate.
This can:
- Push the estate above the exemption limit (currently $13.61M in 2024)
- Trigger a 40% federal estate tax
📉 Problem #3: Fiduciary Conflicts and Practical Dysfunction
Let’s say you’re both trustee and beneficiary.
You wake up one morning and think:
“You know what I need? A $6,000 hot tub. That’s maintenance.”
You approve your own request, write the check, and buy the hot tub.
Now imagine that trust was designed to last 20 years—or that you’re one of multiple beneficiaries (siblings, grandkids, etc.). Your dual role creates a massive conflict of interest, and the other beneficiaries may sue you.
In a family trust, this setup breeds:
- Suspicion
- Family conflict
- Increased court involvement
🧠 What Does Texas Law Say?
Texas follows the Uniform Trust Code with its own modifications. Under Texas Property Code:
- A trustee must exercise discretion in good faith and within the terms of the trust.
- Distributions for a trustee’s own benefit are closely scrutinized.
- Texas courts may allow creditors to reach a beneficiary’s interest if they have dominion and control.
Translation: If you name your adult son as both sole trustee and sole beneficiary of a trust, a lawsuit or bankruptcy could potentially expose the entire trust corpus.
💡 Example Scenarios
✅ Scenario 1: Smart Setup
A father creates an irrevocable trust for his daughter, naming her as both trustee and beneficiary. The trust states she can make distributions for HEMS only with approval or direction from a co-trustee or limited purpose trustee. Result: Asset protection may be preserved.
❌ Scenario 2: Problematic Setup
A mother sets up a trust for her son, naming him as sole trustee and sole beneficiary, with the ability to distribute assets for his HEMS “in his sole discretion.” The son is later sued, and the creditor potentially wins access to trust funds.
🔚 Conclusion: Should a Beneficiary Be Their Own Trustee?
In estate planning, control is a double-edged sword.
While naming the beneficiary as trustee seems like a cost-saving or trust-building move, it can backfire legally and financially—especially when creditor protection and estate tax mitigation are primary goals.
✅ Good Idea If:
- Trust contains clear HEMS limitations
- Co-trustees or limited purpose trustees are involved
- The trust isn’t designed for asset protection
❌ Bad Idea If:
- You want to shield assets from creditors
- You want to exclude assets from the estate
- You want to decrease the risk of potential lawsuits
📞 Next Step: Talk to a Texas Trust Attorney
At Mike Massey Law, we help Texans design strong estate plans that protect assets and preserve harmony. If you’re considering making a beneficiary their own trustee—or you’ve already done it and have concerns—book a free consultation today.
Let’s make sure your trust works the way you intended—today, and for generations to come.
⚠️ Disclaimer
This article is for informational purposes only and does not constitute legal advice. Please consult a licensed estate planning attorney in your jurisdiction for advice tailored to your situation.
