Can a Trustee also be a Beneficiary?

Can a Trustee Be a Beneficiary of a Trust

Now, let’s go over a few roles in the trust administration process so the distribution of estate trust assets is timely to the beneficiaries.

First, the roles in the trust administration process are the following:

1. Trustee: Or can be called “successor trustee.” There is always a Trustee and typically will be the settlor in the initial phases. Once the settlor/trustor dies, all trusts become irrevocable. The new successor trustee enters in to administrate the estate.
2. Settlor/Grantor: The Settlor/Grantor is the person with the estate that wishes to protect assets via a legal instrument, i.e., a trust (see revocable and irrevocable trusts)
3. Beneficiary: The beneficiary is the person who will derive the advantage from a trust, will, or insurance policy. In the insurance policy, you should have both “primary” and “contingent” beneficiaries.
4. Heir: An “heir” is a person, which includes a surviving spouse, who is entitled to receive the estate via “intestate succession”. A beneficiary receives the death benefit but not through intestate succession.

With that said, at the passing of the settlor/grantor, all trusts straightaway convert to an irrevocable status. So, a Trustee can be the beneficiary and an heir of the estate.

Becoming a Trustee, however, has its advantages and disadvantages. The disadvantage could be the remaining beneficiaries can consider a potential “conflict of interest.” The advantage is more control of the estate while living up to the fiduciary responsibilities of a trustee. Therefore, if you are considering a trustee role, learn about the following:

1. Trust Administration process
2. Being Sued by a Beneficiary
3. Trustee and a blended family

Your main objective is to eliminate the possibility of being sued because the beneficiaries see you unfit or that you have violated your legal responsibility. In this case, they could petition the probate court for the removal of a trustee. Are you a beneficiary? Learn more about contesting a trust.

Can the Trustee and Beneficiary Be the Same Person in an Irrevocable Trust?

In both revocable and irrevocable trusts, it’s possible for one individual to serve as settlor, trustee, and beneficiary, managing the trust for their own benefit. This arrangement allows the trust creator (settlor) to establish a trust, place assets into it, and then manage those assets as the trustee. At the same time, they can benefit from the assets as a beneficiary.

This setup is often utilized in estate planning to achieve specific financial or legal objectives, such as asset protection or tax planning. However, it’s important to structure these trusts carefully to ensure they comply with legal requirements and achieve the intended outcomes without unintended consequences.

Can a Beneficiary be a Trustee?

In self-settled trusts, individuals can occupy both roles as the trustee and the beneficiary. This arrangement provides them with control over their assets while also planning for future distribution. This dual role is particularly useful in estate planning, where the settlor wishes to retain some control over the trust’s assets during their lifetime while also being a beneficiary of those assets.

Can a Beneficiary be a Trustee of an Irrevocable Trust?

A beneficiary can serve as a trustee of an irrevocable trust. While convenient, this arrangement requires careful consideration to avoid conflicts of interest and ensure the trust’s purpose is fulfilled.

If I’m a Trustee, do I get paid? (Trustee Fee)

Trustee compensation is a potential benefit of the role, yet it is subject to legal interpretation and the specifics of the trust document. According to the probate code, a trustee is entitled to “reasonable compensation.” However, this entitlement can be revoked, especially if the trustee has breached any fiduciary duty, as outlined in the probate code, potentially requiring repayment of compensation due to a breach of trust.

Now, what is reasonable compensation? (Here are some examples)

• Private Trustees: Typically paid an hourly rate ($20.00 to $45.00 per hour)
• Corporate Trustees: Usually receive 1% to 2% of the Trust Assets.
• Professional Trustees: Given their expertise, professional trustee compensation often exceeds $110.00 per hour for their work.

Ordinary vs. Extraordinary Compensation

The distinction between ordinary and extraordinary compensation is essential. Ordinary compensation covers the expected duties performed by a trustee, whereas extraordinary compensation might include:

• Handling litigation
• Running a business
• Managing commercial property

Guidelines for Compensation in California

California law provides guidelines for determining trustee compensation, considering factors such as:

1. The value of the Trust assets
2. The success in administering the trust
3. Faithfulness in following the settlor/grantor’s wishes
4. The extent of risks and responsibilities, potentially justifying compensation above ordinary levels
5. Total time spent administering the trust
6. Local and state court rules regarding trustee administration

Considerations for Trustees

It’s crucial to note that if a trustee delegates tasks to professionals, like an estate attorney, the courts may adjust the trustee’s fees accordingly. Trustees should manage the trust efficiently and transparently to justify their compensation and fulfill their fiduciary duties to the beneficiaries.