Why Living Trusts Work Even When No Legal Transfer of Ownership Takes Place

lawyer-estate-planningMany years ago, the law held that any trust that had the same person as grantor, trustee, and beneficiary was void, because it was just a paper transaction and didn’t really affect the rights and responsibilities of any parties to the so-called trust. This principle was known as the “merger rule.” However, this rule has since been superseded, and is no longer in effect, provided the trust is properly drafted. Before one can really understand what the merger rule means, it’s important to define what a “grantor,” “trustee,” and “beneficiary” are.

A grantor is the person who sets up a trust and “grants” property into the trust. The trustee is the person who (as the name implies) is entrusted with the management of the assets placed into the trust. Finally, the beneficiary is the person who, not surprisingly, is entitled to receive the benefits of the trust.

Way back in 1909, in a legal case called Estate of Washburn, a judge laid out the rule that a trust that vested legal title (trusteeship) and equitable title (beneficiary status) in a single person was void. The reasoning behind this rule was that there’s no point in a trust that accomplishes the same thing as owning the property as an individual.


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estate-planning-attorneyIn response to this ruling, statutes were adopted that created exceptions to the merger rule. Now, under California law, a trust is not void, even if the grantor, trustee, and beneficiary are the same person, as long as there are people designated in the trust document to serve as “successor trustees” and “remainder beneficiaries” once the original grantor has passed away. If there are people waiting in the wings to take over the trust once the settlers are gone, then the trust has a purpose–estate planning–that gives it a reason to exist. Thus, the merger rule doesn’t apply.

The merger rule is so old, and the exceptions are so broad, that it practically never becomes an issue in modern trust practice. It’s mostly just an interesting bit of legal trivia. As long as the grantors have designated people to step into their shoes as trustees and beneficiaries when the grantors pass away, the merger rule shouldn’t have any effect on their trusts

For help with your estate planning, and to learn about transfer of ownership and Living Trusts, please call David Morris at (916) 789-9810.

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Attorney David R. Morris is a Certified Specialist in Estates, Trusts, and Probate, certified by the State Bar of California. Certified Specialists undergo rigorous peer review, testing, and education to certify that they are experts in their subject matter areas. Fewer than two percent of attorneys in California become Certified Specialists in any area of law—the designation serves as an indication that the attorney is skilled, experienced, and knowledgeable in the specialty area.

With offices in Sacramento and El Dorado Hills, Morris Law Group provides innovative, cost effective solutions for clients seeking to resolve and avoid problems related to their families and livelihoods. We serve individuals and business clients in the communities of El Dorado Hills, Sacramento, West Sacramento, South Sacramento, Midtown Sacramento, Natomas, Folsom, Granite Bay, Rancho Cordova, Citrus Heights, Carmichael, Roseville, Cameron Park, Shingle Springs and Placerville.

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