Every trust or estate arrangement involves a relationship between a fiduciary (the personal representative of the estate or trustee of the trust) and the beneficiary (the person or organization that is entitled to the assets). There can be multiple fiduciaries and/or multiple beneficiaries, but the same relationship applies regardless of number.
The fiduciary holds legal ownership of the property. This means that the fiduciary technically has the power to deal with the assets. But the fiduciary doesn’t hold the property for his or her own benefit as such. Instead, the fiduciary must handle the property in the best interest of the beneficiaries, who hold equitable title to the property.
It is not uncommon for disagreements to arise between the fiduciary and the beneficiaries, especially when a family member is named as fiduciary. If there is already dysfunction in the family, the authority inherent in the role of fiduciary can go to the fiduciary’s head. When the fiduciary starts abusing the power, disputes arise.
I had a case recently that involved just such a mess. The oldest son resented the fact that his younger brother was chosen ahead of him as executor of his father’s estate. The younger son was almost giddy with the decision and didn’t miss a chance to rub it in. When it came to making decisions regarding the property, the two brothers would always disagree, even when agreement would be in their mutual best interest.
Problems also arise when the trustee of a trust is also a beneficiary. In this case, the trustee where’s two hats. Say, for example, that the trust instrument gives the trustee the discretion to choose which assets will be distributed to which beneficiaries. Assuming the trustee is also a beneficiary of the trust, can the trustee distribute cash to himself and hard-to-sell illiquid assets to the other beneficiaries?
The answer is “no.” In situations like this, the attorney should be very clear that the role of personal representative or trustee is a fiduciary role. The trustee cannot use that role to favor himself or herself as beneficiary of the trust. He or she must fulfill trustee duties in as fair and impartial manner as possible.
But fiduciaries aren’t the only parties that get confused regarding their roles. The beneficiaries can also cause problems by taking it upon themselves to interfere with the day-to-day administration of the trust. Absent some unusual provisions in the Will or trust instrument, this sort of interference is beyond the scope of the beneficiary’s role. The trustee is responsible for the management of the trust.
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