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November 10

Conflict of Interest of a Trustee Who is Also a Trust Beneficiary

Written by Thomas Upchurch , , ,

Can a Trustee Also Be a Beneficiary in Florida?

The short, technical answer is “yes.” Nothing in Florida law prohibits a beneficiary of a trust from also serving as trustee. However, the fact that it’s legal to appoint a beneficiary as trustee doesn’t necessarily mean that it’s a good idea. Determining whether or not making a beneficiary trustee is the right choice for you requires an understanding of the responsibilities of a trustee and the possible conflicts that may arise.

Responsibilities of the Trustee

General Duties of the Trustee

The Florida Bar Association provides this list of the general duties of a trustee, though actual duties will vary somewhat depending on the terms of the trust.

  • Hold trust property
  • Invest the trust assets
  • Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
  • Make tax decisions concerning the trust
  • Keep records of all trust transactions
  • Issue statements of account and tax reports to the trust beneficiaries
  • Answer any questions the beneficiaries may have concerning the trust.

Fiduciary Duties of the Trustee

A trustee has a fiduciary duty to all beneficiaries of the trust. “Understanding Fiduciary Duty,” (The Florida Bar Journal, Volume 84, No. 3) provides this short summary of fiduciary duty:

The most basic duty of a fiduciary is the duty of loyalty, which obligates the fiduciary to put the interests of the beneficiary first, ahead of the fiduciary’s self interest, and to refrain from exploiting the relationship for the fiduciary’s personal benefit.

In short, the fiduciary—in this case, the trustee—must put the beneficiary first, and cannot take advantage of the authority vested in him or her as trustee.

Potential Conflicts for Beneficiary Trustees

Fulfilling the fiduciary duty described above may be difficult for a trustee whose own interests are compromised by protecting the interests of the other beneficiaries. And, that’s just the beginning of the complications a trustee who is also a beneficiary could face.

Steve R. Akers, writing for the American Bar Association’s Probate and Property magazine, calls naming a family member trustee “a ticking time bomb.” Akers points out that the trustee’s obligation to say “yes” or “no” to requests from beneficiaries may heighten tensions within a family. In other circumstances, the trustee may be unduly influenced by one or more family members.

Special Conflicts for Remainder Beneficiary Trustees

While a trustee beneficiary’s personal interests are always affected by distributions to other beneficiaries, the conflict is more clear and direct when a remainder beneficiary is appointed trustee. Since the remainder beneficiary’s interest in the trust vests only after the primary beneficiaries have stopped receiving income, and he or she holds an interest only in what is left, any disbursements to beneficiaries directly diminish the remainder beneficiary’s interest in the trust.

The Appearance of Conflict

Imagined problems are a very real problem when it comes to a beneficiary acting as trustee. Even if the trustee executes his or her duties perfectly and prioritizes the interests of the beneficiaries, the likelihood remains that one or more beneficiaries will feel slighted. In this circumstance, the trustee has done nothing wrong. However, conflicts arise and, in extreme cases, the dispute over the beneficiary trustee’s actions may cost the trust money, which is ultimately against everyone’s interests.

A Note about Taxation

Unless the beneficiary trustee’s ability to make distributions to himself or herself is limited by a clear standard, there may be significant tax consequences.

Is a Beneficiary Trustee Right for Your Trust?

While Florida law allows appointment of a beneficiary trustee, there are clear pitfalls to be considered. The potential complications and consequences should be discussed in detail with your estate lawyer before you make a decision.

If you feel that a conflict of interest exists with a Trustee who is also a Trust Beneficiary as described above, you may contact Florida Probate Litigation Attorney Thomas Upchurch or call at (386) 320-6169 to discuss the Trust litigation matter.
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