Many people, creating a revocable living trust, designate their children as the beneficiaries. But, they need to choose a person to be a trust’s trustee and are unsure if a designated beneficiary can legally also be a trustee. Legally, yes, a trustee can also be a beneficiary. However, while a beneficiary can be a trustee, there are a few rules they must adhere to.
Should you tap a beneficiary to also be a trustee?
There are several understandable reasons to designate a trust beneficiary to also be a trustee:
- Convenience – When people designate a beneficiary as a trustee, it’s because they trust and love that person. It’s convenient to name someone they trust will do their bidding by the guidelines set forth because of the trust they have in them.
- Vested Interest – A trustee who is also a beneficiary is considered to have a “vested interest” that the trust is carried out as the person has requested. This is especially true if there is a benefit to them with it. A beneficiary who is also a trustee may not be happy with carrying out their duties if they don’t like what the trust gives them.
What are the negative aspects of designating a beneficiary a trustee?
Conflicts and Resentment
There may be cases where other beneficiaries may be resentful toward the named beneficiary, causing conflict between them. They may also wonder why they were not chosen to be the trustee and give the named trustee a hard time. When choosing your trustee, be sure to remember why you are creating a trust.
For instance, if your goal is to protect your assets, a beneficiary who is also a trustee could hinder the objective from being carried out.
Therefore, it’s imperative to speak with an experienced lawyer about the positive and negative points of appointing a trustee who is also a beneficiary.
How Can A Trustee-Beneficiary Successfully Guarantee Their Duties Are Carried Out
Trustees must pay “fiduciary duties” to the trust’s beneficiaries, meaning the trustee needs to take actions that are best for the named beneficiaries and carry out the trust’s dictated orders. Trustees are not permitted to use property or money in a way that benefits them solely. This “best interest” can become fuzzy and complex when a trustee is a beneficiary.
However, there are several ways a trustee-beneficiary can avoid these common mistakes:
Be Honest and Communicate
The most important things a trustee can be are honest, communicative and transparent with the other beneficiaries. The trustee needs to let others know what is going on and why they are acting as they are. When there is no communication between the beneficiaries and trustee-beneficiary, people will assume the worst. It’s imperative for a trustee-beneficiary to be honest about everything happening.
Follow The Terms Exactly
To avoid appearing as if they are acting in their own best interest, a trustee-beneficiary should act in accordance with the trust’s terms. As evident as this seems, some trustees have taken it upon themselves to take charge and do what they want with the property and money. A trust-beneficiary must take special care to provide other beneficiaries similar freedoms they, themselves, have.
For instance, a trustee-beneficiary will use their money for a loan must make others aware of their intentions and offer the same benefit. Communication can help avoid misunderstandings and appear as if the trustee-beneficiary acts only for themselves.
Keep Detailed Records
A trustee-beneficiary must keep detailed records of every action taken and how much time they are spent working on the trust. They should also compensate themselves for that time at a reasonable price, as it can be a time-consuming and tedious process.
A trustee-beneficiary who gets compensated thousands of dollars may have other beneficiaries wondering why they deserve that much. With meticulous records, a trustee-beneficiary has documentation to show what they did and how much time was spent on the responsibilities.
You can always tap a beneficiary to be a trustee, but make sure you trust that this person will follow through on your requests. You don’t want a trustee-beneficiary who looks out for only themselves and shirks their fiduciary responsibilities.