Can I be Both Trustee and Beneficiary of a Trust?

by | Mar 4, 2023 | Estate Planning | 0 comments

Even if they are one of the trust’s beneficiaries, California law permits someone to serve as the trustee of a trust. The trustee, however, must continue to function in a fiduciary role and refrain from giving in to conflicts of interest that might lead to them prioritizing their wants or interests above those of other beneficiaries.

Learn more about the duties of trustees and beneficiaries, what it entails to fulfill both roles, and why you might want to consult with a trust administration lawyer in the sections below.

How Do Trusts Work?

An official arrangement known as a trust enables one person, a group, or an organization to manage assets on behalf of other individuals or entities. The trust truly owns (or holds) the assets after establishing them and becoming a separate legal entity. A trust has rights and is subject to laws and regulations since it is a legal entity.

Trusts can hold several assets, including cash, investment accounts, real estate, life insurance policies, collectibles, fine art, and other property.

To assist in explaining how trusts operate, the following three examples are provided:

• A parent may establish a trust for their child and specify that the funds only be used for college expenses. The trust’s trustee would be in charge of allocating funds to pay for authorized costs.

• To shield their property from litigation and creditors and to make it simpler to pass it on to heirs in the future, a property owner can put the ownership of their house or other property into a trust.

• A spouse concerned about their spouse’s spending tendencies may establish a trust with guidelines that set a monthly distribution cap. They could utilize this trust to provide their spouse with a source of income in the event of their passing.

What Function Does a Trustee Perform?

The trustee has custody of the trust’s assets under the law. According to the Trust’s terms and the beneficiaries’ best interests, they must manage the assets.

Fiduciaries are those who act as trustees. A fiduciary is legally required to behave in another person’s best interests. This implies that a trustee is prohibited from using the trust’s assets for their gain, with minimal exceptions where a trust contains provisions to compensate the trustee for their services.

There may be more than one trustee serving in this capacity for a trust. Trustees may be close associates or blood relatives of the trust creator. They may also be chosen and compensated as attorneys or other qualified experts for their third-party trust-management services.

What Function Does a Beneficiary Serve?

The recipient of the trust’s assets is known as the beneficiary. In the first case mentioned above, a parent establishes trust in their kid to guarantee that educational costs are covered. The youngster would benefit in this situation.

There may be several beneficiaries of a trust. For instance, individuals could designate their minor children as trust beneficiaries. An organization may also be defined as a trust’s beneficiary.

Can a beneficiary also serve as a trustee for the same trust?

According to California law, a person may serve as a trustee and a beneficiary of a trust. Sometimes, the settlor, the trustee, and the beneficiary may be the same. The person who established the trust and provided its first funding is the settlor or trustor.

A person who serves as both a trustee and a beneficiary of a trust must follow the law and the terms of the trust. When there are other beneficiaries, this might be a tricky line to tread.

Whether or not you are a beneficiary, your decisions as a trustee regarding the management and distribution of assets must consider the beneficiaries’ best interests and adherence to the trust’s regulations. When you are a beneficiary, though, you must consider if your activities place you in any way ahead of the other beneficiaries—and that might occasionally appear subjective.

It depends on who owns the property and stands to gain financially from its sale if you manage trust and use trust money to improve a piece of property to increase its sale price. Whether or not this is an issue, everyone will profit from the choice if each trust beneficiary is the asset’s owner. If you are the only land owner, the choice would serve your interests alone and be viewed as conflicting. The other beneficiaries may submit a petition to have you terminated as trustee or even take the case to court.

Employ a lawyer for trust administration

Several duties are associated with being a trustee, which increases when you are the trust’s beneficiary. Working with a trust administration attorney can relieve some of those duties from your plate and assist in guaranteeing that trust is handled following the letter of the law and the trustor’s intentions. Get in touch with Barilari & Williams, LLP, right now to see how we can assist.