As you begin the estate planning process and create your first trust, you may wonder, “Can a beneficiary also serve as trustee?” Beneficiaries can and often do serve as trustees of trusts. Although this practice is perfectly legal in many situations, there are specific responsibilities and legal duties that come along with serving in this role. By learning more about how these roles work together, you can complete your estate plan with confidence, knowing your assets and loved ones are protected.
What Is the Difference Between a Trustee and a Beneficiary?
The person who serves as trustee and beneficiary of a trust can be the same, but each role has different responsibilities.
Trustee
The trustee is someone who manages the trust on behalf of the beneficiaries. They are responsible for investments, paying debts or taxes when necessary, keeping detailed records, and distributing trust assets according to the terms of the trust document. Simply put, trustees manage the trust.
Beneficiary
Beneficiaries are people or organizations that receive assets from the trust. Beneficiaries benefit from the trust.
When the same person serves as both trustee and beneficiary, they must put their personal interests aside and perform their legal duties as trustee.
Why Would Someone Name a Beneficiary as Trustee?
It’s common for trusts to allow someone you know and trust to manage the trust when you pass away or become incapacitated. Often, that trusted person is a beneficiary of your estate. Parents commonly name their child as the successor trustee and leave that child an inheritance from the estate.
Couples usually name themselves as the first trustee and beneficiary of their revocable living trusts. When a family member serves as trustee, they are already familiar with your family’s wishes, financial situation, and long-term plans.
Another benefit of choosing a beneficiary is that it can save money on administrative expenses if you do not need to hire a professional fiduciary.
Do Trustees Have a Fiduciary Duty?
Those who serve as trustees have a big responsibility. They have what’s known as a fiduciary duty to the beneficiaries of the trust. This legal duty requires a trustee to act prudently and in the best interests of the beneficiaries.
Trustees must follow all of the terms outlined in the trust document and administer it honestly. They cannot use trust assets for their own benefit unless explicitly allowed by the trust document. A trustee cannot favor themselves over other beneficiaries.
Trustees who violate their fiduciary duties can be removed by the court and held personally liable for any damages to the trust.
Can There Be Any Issues With Naming a Beneficiary as Trustee?
Sometimes complications can arise when one beneficiary serves as trustee. If you have multiple children and decide to let one child manage the trust while the others are beneficiaries, conflicts can occur. The children who aren’t serving as trustees may feel like they aren’t being treated fairly or worry that their sibling is keeping assets that belong to them. Examples of some common problems include:
- Feeling like the trustee is playing favorites
- Waiting too long to distribute assets
- Poor communication
- Disagreements about how property is being managed
- Accusations that the trustee violated their fiduciary duties
Keep in mind that just because a family comes across these issues doesn’t mean a beneficiary should not serve as trustee. However, it can be helpful to think about whether your intended trustee would cause family conflicts. Your trustee should be trustworthy, organized, and able to treat all beneficiaries equally.
Can a Trustee Get Paid to Administer a Trust?
Many people are under the impression that serving as trustee is an honorary position. Not only can beneficiaries serve as trustees, but trustees are actually allowed to receive payment for their time. Keep in mind that a trustee should only receive reasonable compensation for their work.
Administering a trust requires a lot of work. Trustees may have to collect financial records, work with accountants, communicate with beneficiaries, manage or sell investments, and oversee the payment of taxes. As long as the compensation is allowed by the trust document and state law, a trustee can get paid. Having the trustee keep detailed records will help eliminate disputes over trustee compensation.
When Would It Be Better To Have Someone Else Serve as Trustee?
Family members make great trustees in most situations. However, there are certain times when choosing someone other than a family member may be your best option.
For example, you may want to choose an independent trustee if your family dynamics are complicated, your estate includes business interests or investments, your beneficiaries don’t get along, or you want the trust to last for multiple generations. An independent trustee adds a layer of protection for your estate because they are neutral third parties and can help minimize family conflicts.
Of course, every situation is different, which is why it’s essential to carefully weigh your options when choosing a trustee.
What Qualities Should You Look For in a Trustee?
If you have the option of choosing who should serve as trustee, look for qualities that will make your other beneficiaries feel comfortable. While there is not one specific type of person that makes a great trustee, there are certain characteristics that every trustee should have.
Look for someone who:
- Is honest and acts with integrity
- Possesses strong organizational skills
- Is financially responsible
- Is able to communicate effectively
- Will follow the trust document regardless of their personal desires
By choosing someone with these traits, you can rest easy knowing your trust will be administered according to your wishes with little chance of family disputes.
Should a Beneficiary Serve as Trustee? Planning for the Future Begins with a Trust
Whether you should serve as trustee of a trust depends on your family’s unique needs. In many situations, having a beneficiary serve as trustee is perfectly fine and makes administering the trust simple. If your family is likely to run into trust administration issues or you have complicated assets, hiring an independent trustee might be your best option. An estate planning attorney can help you understand your options and create a trust that leaves no room for confusion.
Contact Patton Law Group
Can a beneficiary also serve as trustee? As you can see, the answer is yes. At Patton Law Group, we know how to create trusts that allow your family to seamlessly administer the trust while providing maximum protection for your assets. Contact our experienced estate planning attorneys to discuss your goals and learn how to create a trust that will preserve your legacy. Contact Patton Law Group today to schedule your consultation.
