Can a new Trust be created and assets transferred without telling the Trustee?
Once a Trust has assets titled in the name of the Trustee, that named Trustee becomes the legal owner of the assets. The beneficial owner of the assets is whoever is named as beneficiary. In the case of revocable trust (also called living trusts), the Settlors are also the beneficiaries. Settlors are often the Trustees too, but there are instances when a different person or Trust company is named as Trustee.
Since the Trustee is the legal owner of Trust assets, the Trustee technically is the one who has to transfer assets out of the Trust. But what should happen, and what does happen, can be two different things.
We have often seen assets taken out of a Trust by the Trust Settlors without telling a Trustee. Those assets are then transferred to a new Trust naming a new Trustee. This can occur because (1) the Trust allows the Settlor to do so, (2) the assets are not held in the Trust to begin with, or (3) the financial institution simply allows the Settlor to make the transfer.
Technically speaking, most Trusts require that a Trust revocation be served on a Trustee. And removing assets from a Trust is the equivalent to revoking the Trusts as to those assets. As for a distribution of assets from the Trust, that is usually done by the actions of the Trustee.
So is there anything wrong with a Settlor taking assets out of a revocable Trust? Generally, no there is not. Most Settlors retain the right to revoke the Trust. Taking assets out of the Trust, even if not done with technical correctness, is “no harm, no foul.”
That does not apply, however, if only one Settlor takes assets belonging to both Settlors (such as community property). That can be a problem. Or where a Settlor takes assets from a part of a revocable Trust that has become irrevocable due to the death of one spouse. That is also a problem. But absent a special problem, the act of taking assets out of a revocable Trust is perfectly acceptable.