When creating a revocable living trust, many clients naturally name their children as beneficiaries. It is also very common for clients to ask whether one of those same children can serve as the trustee. The short answer is yes – a beneficiary can legally serve as trustee of the same trust.
However, just because something is allowed does not always mean it is the best choice. Whether this arrangement works well depends on your goals, your family dynamics, and how the trust is structured.
As an estate planning attorney, my role is to help you understand both the benefits and the potential risks so you can make an informed decision.
Is It a Good Idea to Name a Beneficiary as Trustee?
There are several reasons why naming a beneficiary as trustee can make sense.
First, it is often convenient. Beneficiaries are typically people you already know and trust. They understand your family, your values, and your intentions, which can make trust administration smoother.
Second, a trustee who is also a beneficiary has a personal interest in seeing the trust managed properly. When someone benefits from the trust, they are often motivated to protect the trust assets and follow the instructions you put in place.
That said, there are also important downsides to consider.
Naming one beneficiary as trustee can create tension or resentment among the other beneficiaries. They may question why one sibling was chosen over another or worry about favoritism – even if none exists. In families with strained relationships, this arrangement can quickly lead to conflict.
In addition, if one of your main goals is asset protection, having a beneficiary serve as trustee may weaken those protections if the trust is not carefully drafted. This is especially important when creditors, lawsuits, divorces, or government benefits are concerns.
For these reasons, it is important to discuss the pros and cons with an experienced estate planning attorney before making this decision.
How Can a Trustee Who Is Also a Beneficiary Fulfill Their Duties Properly?
Every trustee has a legal responsibility known as a fiduciary duty. This means the trustee must act in the best interests of all beneficiaries and follow the terms of the trust exactly as written.
When the trustee is also a beneficiary, these responsibilities require extra care. The following guidelines can help a trustee-beneficiary manage the trust responsibly and avoid problems.
1. Be Open and Transparent
Clear and consistent communication is essential. A trustee-beneficiary should regularly update the other beneficiaries about trust activities, decisions, and distributions. When beneficiaries are left in the dark, misunderstandings and distrust can grow quickly.
Transparency helps prevent conflict and reassures everyone that the trust is being handled fairly.
2. Follow the Trust Terms Exactly
A trustee does not have unlimited authority. The trust document controls what the trustee can and cannot do.
A trustee-beneficiary should strictly follow the trust instructions and avoid even the appearance of favoring themselves. If the trustee takes advantage of a benefit allowed under the trust – such as a loan or distribution – other beneficiaries should be informed if they are entitled to the same opportunity.
This approach helps prevent accusations of self-dealing and reinforces fairness.
3. Keep Detailed Records and Reasonable Compensation
Serving as trustee can be time-consuming, and trustees are generally entitled to reasonable compensation. However, when a trustee is also a beneficiary, compensation can raise questions.
Keeping detailed records of tasks performed, time spent, and expenses paid helps demonstrate that compensation is fair and justified. Clear documentation protects the trustee and builds trust among beneficiaries.
Making the Right Choice for Your Family
There are many situations where naming a beneficiary as trustee is both practical and effective. When done thoughtfully and with proper guidance, it can work very well.
The key is careful planning. The right trust structure, clear instructions, and ongoing legal guidance can help ensure that a trustee-beneficiary fulfills their duties and honors your intentions.
If you are considering naming a beneficiary as trustee – or are unsure whether it is the right choice for your family – I can help you evaluate your options and design a plan that protects both your assets and your relationships.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. The Life & Legacy Planning Session will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a 15-minute introductory call today.