California law does allow someone to act as the trustee of a trust even if they are one of the beneficiaries of that trust. However, the trustee must still act in a fiduciary capacity and not give into conflicts of interest that might cause him or her to put their own needs or desires over those of other beneficiaries.
Find out more below about the roles of trustees and beneficiaries, the details that go into being both, and why you might want to work with a trust administration attorney.
What Is a Trust?
A trust is a legal arrangement that lets one person, group, or organization manage assets on behalf of other people or groups. When it’s created, the trust becomes its own legal entity and actually owns (or holds) the assets. Because it’s a legal entity, a trust has rights and is governed by specific rules and laws.
Trusts can hold a variety of assets, including cash, life insurance policies, investment accounts, real estate, collectibles like fine art, and other property.
Here are three examples of trusts to help illustrate how they might work:
- A parent might create a trust for their child, requiring that the assets be used to cover the costs of college. The trustee for that trust would be in charge of distributing assets to cover approved expenses.
- A property owner might transfer ownership of a home or other property into a trust to protect it from creditors and lawsuits while making it easier to transfer to heirs later.
- A spouse who is worried about his or her partner’s spending habits might create a trust with rules that limit how much money can be distributed each month. They might use this trust as a way to leave an income to their spouse if something happens to them.
What Is the Role of a Trustee?
The trustee is the person who has legal control over the property in the trust. They must manage the assets in accordance with the provisions of the trust and the best interests of the beneficiaries.
Trustees are considered to be fiduciaries. A fiduciary is someone who has a legal responsibility to act in the best interests of someone else. That means a trustee cannot use the assets of the trust to benefit themselves except in very specific cases where a trust includes provisions to pay the trustee for his or her services.
A trust can have multiple trustees that work together to handle this role. Trustees can be friends or family members of the person who set up the trust. They can also be lawyers or other experienced professionals who are selected and paid for their third-party trust-management services.
What Is the Role of a Beneficiary?
The beneficiary is the person who benefits from the assets in the trust. In the first example given above, a parent creates a trust for their child to ensure educational expenses are paid for. In this case, the child would be the beneficiary.
A trust can have multiple beneficiaries. All of someone’s minor children might be named as beneficiaries to a trust, for example. You can also name an organization as a beneficiary of a trust.
Can You Be a Trustee and a Beneficiary for the Same Trust?
Yes, California law allows someone to be both a trustee and beneficiary of a trust. In fact, in some cases, the settlor, trustee, and beneficiary are all the same person. The settlor, also known as the trustor, is the person who set up the trust and funded it to begin with.
If someone is both the trustee and a beneficiary of a trust, they must be careful to act in accordance with the law and the provisions of the trust. This can be a fine line to walk, especially when there are other beneficiaries involved.
As a trustee (whether or not you’re a beneficiary) you must weigh every decision you make in managing and distributing assets against whether it’s in the best interests of the beneficiaries and following the trust rules. When you’re one of the beneficiaries, though, you have to think about whether your actions put you ahead of the other beneficiaries in any way—and that can sometimes seem subjective.
For example, if you are managing a trust and you use funds from the trust to make upgrades to a piece of property so it sells for a higher price, whether or not this is a problem depends on who owns the property and benefits from its sale. If all the beneficiaries in the trust own the property, the decision benefits everyone. If only you own the property, the decision benefits only you and would be considered a conflict of interest. The other beneficiaries may file to have you removed as trustee or even engage in trust litigation over the matter.
Hire a Trust Administration Lawyer
Acting as a trustee comes with a lot of responsibilities, and those multiply when you are both the trustee and the beneficiary of a trust. Working with a trust administration lawyer can take some of those responsibilities off your plate and help ensure a trust is managed to the letter of the law and according to the spirit of the trustor’s wishes. Contact Barilari & Williams, LLP, today to find out how we can help.