Why Your Trust Needs an Independent Trustee (Even If You Don’t Have Estate Tax Concerns)
When setting up a trust, you may see a requirement that the Independent Trustee must not be related or subordinate to you or any trust beneficiary under Section 672(c) of the Internal Revenue Code.
But what does that actually mean? And why does it matter for your trust?
Many people assume this rule only applies if they have estate tax concerns—but that’s not the case. Even if your estate isn’t large enough for federal estate taxes, requiring an Independent Trustee can be critical for Medicaid planning and protecting assets from being counted as available resources.
Let’s break down who qualifies as an Independent Trustee and why it matters for both tax and Medicaid purposes.
What Is an Independent Trustee?
An Independent Trustee is someone who has control over trust assets but isn’t influenced by you (the person who created the trust) or the trust’s beneficiaries. This independence is key to keeping trust assets separate from your personal assets, which is important for both:
Estate tax planning – Ensuring trust assets aren’t included in your taxable estate
Medicaid planning – Making sure assets aren’t counted against you for Medicaid eligibility
This is why, even if you’re not concerned about estate taxes, you might still need an Independent Trustee.
Why Does an Independent Trustee Matter for Estate Taxes?
For larger estates, the IRS looks at whether the person who created the trust (the grantor) still has control over the assets. If they do, those assets might still be included in their taxable estate, even if they were placed in a trust.
By appointing an Independent Trustee, you reduce the risk of having those assets pulled back into your estate, which could otherwise trigger estate tax liability.
Why Does an Independent Trustee Matter for Medicaid?
Even if estate taxes aren’t a concern, an Independent Trustee is just as important for Medicaid planning.
When applying for Medicaid for long-term care, the government looks at your assets to determine eligibility. If you have too much control over a trust, Medicaid might argue that those assets still belong to you—making you ineligible for benefits.
By appointing an Independent Trustee, you strengthen the argument that the assets are not yours and should be excluded from Medicaid calculations.
Who Cannot Serve as an Independent Trustee?
Under IRC § 672(c), the following people cannot serve as an Independent Trustee:
Your spouse
Your parents or grandparents
Your children, grandchildren, or other descendants
Your siblings
An employee of yours or of any trust beneficiary
A business partner or someone under your control
A trustee or fiduciary who is financially dependent on you
If a trustee falls into one of these categories, the IRS (for estate tax purposes) or Medicaid (for long-term care eligibility) might argue that you still have too much control over the trust assets.
Who Can Serve as an Independent Trustee?
To qualify as independent, the trustee must be truly separate from you and the trust beneficiaries. Good options include:
A trusted friend or colleague (who isn’t financially dependent on you)
A professional trustee (such as a bank trust department or independent fiduciary)
An attorney, CPA, or financial advisor (as long as they are not employed by or controlled by you)
Any other person who isn’t related or subordinate to you or the beneficiaries
What About a Brother-in-Law?
A brother-in-law (your spouse’s sibling or your sibling’s spouse) is not automatically disqualified under § 672(c). This means they could serve as an Independent Trustee, unless:
They are financially dependent on you or the trust beneficiaries
They work for you or a business you control
They are otherwise under your influence
While a brother-in-law isn’t automatically ruled out, it’s important to ensure they are truly independent before appointing them.
The Bottom Line: Why an Independent Trustee Matters
Even if you don’t have estate tax concerns, an Independent Trustee can still be critical for Medicaid planning. The key takeaway is:
✅ For estate tax purposes, an Independent Trustee helps ensure trust assets aren’t included in your taxable estate.
✅ For Medicaid planning, an Independent Trustee helps show that trust assets aren’t under your control, which can protect eligibility for benefits.
If you’re considering a trust for estate or Medicaid planning, choosing the right trustee is one of the most important decisions you’ll make.
Need Help Choosing the Right Trustee?
I help individuals and families structure their trusts to ensure they meet legal and tax requirements while protecting assets for the future.
If you have questions about selecting an Independent Trustee, get started here, and let’s talk through your options.
Final Thoughts
By structuring your trust correctly and appointing a truly Independent Trustee, you can avoid unnecessary tax issues and keep your assets protected—whether from estate taxes, Medicaid rules, or both.