Can a trustee be a beneficiary? Simply put, a trustee can also be a beneficiary of a trust. However, there are several nuances you’ll need to know about how and when you should appoint one of your beneficiaries as the trustee.
Read on for everything you need to know about the benefits and problems that can arise when a beneficiary is also the trustee of a trust.
What is a Trustee?
A trustee is the party responsible for maintaining a trust and distributing trust assets. The trustee is appointed by the creator of the trust.
They are assigned to ensure that the will of the trust is carried out. Trustees ensure that all trust assets are appropriately managed, accounted for, and ultimately distributed to the intended individuals.
Serving as a trustee is a legally binding position. Trustees are obligated to fulfill the will of the trust and to appropriately handle all funds, property, and other trust assets. That could potentially include completing regular accounting audits, paying taxes, investing, managing an estate, and more.
What is a Beneficiary?
A beneficiary is an individual who will receive assets from the trust. A trust may have one, two, or multiple beneficiaries. The trust will usually outline what a beneficiary is entitled to inherit and when funds are to be distributed.
There may be certain parameters or time constraints on when the money is to be distributed. Trustees are responsible for making decisions about distributions within the guidelines established by the trust.
Can a Trustee Be a Beneficiary?
Yes, a trustee can also be a beneficiary of a trust. However, there are some constraints on when this is allowed.
A sole trustee cannot also be a sole beneficiary. Establishing a trust for your own benefit is seen as a tax shelter and, therefore, an illegitimate trust.
However, if you have a smaller trust and beneficiaries that have a good relationship with one another, there are some advantages to having a beneficiary serve as the trustee.
They will have a more in-depth understanding of the trustee and its intentions. A trustee who is also a beneficiary will also have a vested interest in making sure that the funds are invested safely and that all taxes are paid.
Potential Conflicts for Beneficiary Trustees
There are also some inherent conflicts of interest that come with having a trustee who is also a beneficiary. The individual could make self-interested decisions to the detriment of other beneficiaries. While all trustees must follow the rules outlined by the trust, there is usually some amount of discretionary power.
Depending on the document, the trustee may have the authority to determine when and in what amounts the other beneficiaries are paid. They might make decisions more suited to their own individual wants than ensuring fairness amongst all beneficiaries.
When Should I Contact a Trust Litigation Attorney?
If you suspect that a trustee is making selfish and unfair decisions about trust assets, they may be in breach of fiduciary duty. Although trustees have decision-making authority about how to handle a trust and its assets, they also have a duty to the other beneficiaries.
A trustee who is not acting in the best interest of the trust or diverting trust assets to themself unlawfully may be in breach of their fiduciary duty. If you suspect foul play, contact a trust litigation attorney as soon as possible.
Have questions? We have answers! Contact The Legacy Lawyers for more information about trusts and estate planning. Give us a call or set up a free consultation at 800-840-1998.