Trustees and Trust beneficiaries are two different roles in every Trust. The Trustee is the Trust manager, they manage the Trust assets and are referred to as the legal owner of the Trust property. Beneficiaries received all of the benefits from the Trust assets, they are the beneficial owners of the Trust property. In other words, assets placed in Trust assume two different ownership rights: legal and beneficial. This is unique compared to assets you own individually where the legal and beneficial rights are held by one person at all times. With Trusts, the legal owner (the Trustee) does not receive the benefits of the Trust assets; those are reserved for the beneficial owner (the beneficiary). Conversely, the beneficial owner does not make the management decisions for the Trust because those decisions are reserved for the legal owner (the Trustee). The Trustee has all the responsibility, the beneficiary receives all the rewards.
Can a Trustee be a Beneficiary?
Given these dual roles, can a Trustee also be a Trust beneficiary of the same Trust? The simple answer is yes, a Trustee can also be a Trust beneficiary. In fact, a majority of Trusts have a Trustee who is also a Trust beneficiary. Nearly every revocable, living Trust created in California starts with the settlor naming themselves as Trustee and beneficiary. Many times a child of the Trust settlor will be named Trustee, and also as a Trust beneficiary.
Being a Trustee and beneficiary can be problematic, however, because the Trustee must still comply with the duties and responsibilities of a Trustee. That means the Trustee must treat all the beneficiaries equally and avoid any conflicts of interests. This may hard to do when one of the beneficiaries is a sibling who does not get along with the Trustee.
In some cases, we have seen the Trustee/beneficiary intentionally benefit their own interests. For example, a Trustee/beneficiary who uses Trust money that belongs to all Trust beneficiaries equally to fix up a house that is going to just the Trustee. When a Trustee unfairly benefits themselves in using their Trustee power, that can lead to a breach of Trust.
So even though a Trustee can also be a beneficiary, it is not always a good idea to do so. If you are creating a Trust you really should consider alternate Trustees who can act instead of a child. If you are a child named as Trustee, then you must exercise caution in everything you do as Trustee to avoid any potential or perceived conflicts of interest. Alternatively, you may want to consider refusing to act as Trustee. It may sound good to be put in charge of the Trust, but you may be getting yourself into far more trouble than you bargained for.
We often say that being a Trustee is a thankless job. Trustees take on all the responsibilities and receive few benefits. But if you do choose to take on that role, then you must learn how to separate your Trustee role from your beneficiary role. If you don’t, then you may end up with no hats at all.