When you have a trustee who’s also a beneficiary, there’s an inherent potential conflict of interest. A trustee is the person who’s going to make all of the management decisions for the Trust. For example, the trustee may decide to sell an asset or to keep an asset, but that decision will have an effect on the beneficiaries. The trustee has a duty to treat all of the beneficiaries equal. But, if the trustee is also a beneficiary, they may want one result whereas other beneficiaries may want a different result. The trustee-beneficiary may want to sell the asset whereas the other beneficiaries want to retain that asset. That can be a problem.
Avoiding Conflicts of Interest
So how does a trustee who’s also a beneficiary avoid this conflict of interest so that they’re not later sued for breach of Trust? The answer is that the trustee has to walk a very fine line. They really need to think about their trustee duties first and foremost, because those trustee duties are prescribed by California law. And that means that they can potentially be sued for violating those duties. They’re not going to be sued for violating any duties as the beneficiary, because there are no beneficiary duties. It’s only the trustee duties that they should be concerned about. So they really should put those trustee duties first and foremost in their mind.
Secondly, they should consider having two attorneys. One attorney to advise them on trust matters so that the trustee is getting independent advice from an attorney who’s representing them as trustee and then a separate attorney who’s representing their interest as a beneficiary. By having two different attorneys advise this one person – one as trustee, one as beneficiary – they can later prove that they were getting independent advice about what action to take and they can also, hopefully, prove that their actions did not breach their duties as trustee.