In a word, yes — a trustee can also be a beneficiary. It’s standard practice for living, revocable trusts.
Things get trickier when someone is both the “successor trustee” and beneficiary after someone has passed away, and/or working with a living but irrevocable trust.
There aren’t any rules or laws that state on a blanket level that a trustee cannot be a beneficiary, but it can cause drama in the right situations.
(and lots of it)
What is a trustee?
A trustee is the person that the creator of the trust, known as a trustor, has appointed as the steward of the trust.
Basically they look at the trust and everything involved with it, and then follow its instructions to the best of their ability. Technically they have a fiduciary duty to do so.
What does a trustee do, specifically?
Whatever the trust says, really. But in general that means:
- Managing and selling trust property.
- Transferring ownership of assets to appropriate beneficiaries
- Organize assets in the trust and take actions to reduce the tax burden
- Pay all relevant taxes
- Update beneficiaries on a consistent basis
What is a beneficiary?
A beneficiary is just the person(s) in the trust who are supposed to receive certain assets or benefits as dictated by the trust. A.k.a. a “person of interest” who has something to gain or lose from the trust’s existence.
General Rights of Beneficiaries
- Can ask the court to remove a trustee if they feel like the trustee is violating their fiduciary duty to the trust.
- Can ask for reports and information about the trust and what the trustee has been doing.
- Can have full accounting access to all trust assets and debts
- Can demand/ask for the distribution owed to them as stated in the trust.
- Can ask for trust-generated income as detailed in the trust
Trustees must honor these rights.
Also…
You can’t be both the sole trustee and the sole beneficiary
In other words, setting up a trust solely for your own benefit (usually in the form of taxes), is almost always illegitimate. Trusts are about sustainable transfer, and flattening that transfer to yourself defeats the purpose of a trust in the eyes of the law.
Having someone be a trustee beneficiary is normally fine
With smaller trusts and only a few beneficiaries that have good relationships, it can be really convenient to have someone be both the trustee and beneficiary. They also have a vested interest in preserving and distributing the trust because they stand to benefit — assuming they don’t think they got screwed from the onset.
But it can also get tricky
Having a third-party trustee that isn’t a beneficiary is usually the best, but that service costs time and money (usually a small percent of the trust’s assets per year).
It isn’t always an option, and that’s fine — just know that you need to be very transparent about what you’re doing if you’re the beneficiary and trustee, and if you’re a separate beneficiary, you need to have a lot of trust (get it) in the trustee.
Risks of Conflict
What if you have two siblings who hate each other, and one has more power by being the trustee? Or what if one beneficiary, who is also acting as the trustee, decides to interpret parts of the trust in a way that is detrimental to other beneficiaries?
Technically, the trustee has a fiduciary duty to carry out the terms of the trust, but in trusts like “discretionary trusts” where there aren’t specifics around how distributions should be made, things can get nasty quick.
And even if it doesn’t get nasty, it’s worth asking if you, or the person designated the beneficiary trustee, can remain impartial. If not, it may be best to hire outside help.
What to do if you expect foul play
Some of the most common ways trustee beneficiaries abuse their fiduciary duty include:
- Paying off personal debts using the trust’s funds or assets
- Investing in their own companies with the trust
- Giving themselves, close family members, or friends loans from the trust without express permission.
- Selling property to friends or relatives for less than it’s worth.
- Fighting to keep a legitimate trust contest from progressing because they have more to gain by it staying the same
- Make gifts from the trust to friends or charities.
If you suspect both a conflict of interest and believe the trustee is abusing their position, it’s time to contact a lawyer.
Succeeding as a trustee beneficiary
- Be transparent as much as possible. Give detailed updates, keep records, explain why you’re making the decisions you are, ask for the other beneficiaries input, etc.
- Be aware of your own biases. Know where you will be most vulnerable to temptation and name those instances going in.
- Avoid any choices that seem to benefit you. Especially when relationships are already fraught, it may be worth taking more conservative decisions if those appear more neutral.
- Always ask yourself if your next move honors the trust. Remember you have a fiduciary duty to the trust. You should be using the trust documents to guide your choices, not your views as a beneficiary.
Other Trust & Estate Articles Worth Reading
All of these link out to other articles and stuff we’ve written in this space, and if you have any questions about how trusts related to probate and estate settlement, definitely shoot us an email at support@weareatticus.biz. Happy to help if we can.
