Trustee and Beneficiary in Trust

Community Contributed

By Eileen M.S. Nims, Esq.

A revocable trust is a wonderful invention. It allows you to protect your assets from going through probate, while maintaining full control over your properties while you are alive. That is because during your lifetime, you are both the trustee and the beneficiary. Upon your passing, the trust becomes irrevocable. This means that no changes can be made to the instructions and the content of the trust. A huge advantage of an irrevocable trust is that is also shields the beneficiaries’ share of assets against predators, creditors and disability.

Predators are those people who suddenly become the beneficiary’s best friend, or people who ask money for their child’s medical bills, or people who will sell you a bridge in Iowa. Creditors are those making any monetary demands, such as in cases of liens, litigation judgements and divisions of assets in a divorce. Assistance of divorce lawyers is highly beneficial for an amicable divorce. Disability of a beneficiary in this context can come in several forms. They could be entangled in a battle against addiction, or they could be the recipients of government assistance due to an accident or illness, or they could be incarcerated. 

However, this protection only applies if the beneficiary is not also the trustee. The trustee is the person who holds the key to the trust, while the beneficiary is the person who is the recipient of the contents of the trust. As long as the holder of the key is not the same person as the recipient, the trust protects against distribution to the beneficiaries in cases of predators, creditors and disability. If the trustee is the same person as the beneficiary, the trust is seen as an open door and there is no separation and therefore no protection.

Meanwhile, the trust language will instruct the trustee who gets what, when, where and how. This allows the beneficiary to receive funds and assets from the trust for appropriate uses, while keeping the assets and funds safe from wasteful expenditures. Again, this is only possible when the beneficiary is not also the trustee. 

Another important reason for keeping the trustee and beneficiaries separate is when there are multiple beneficiaries. If only one of the beneficiaries is trustee, there is not only the loss of protection for that beneficiary’s share of the trust, but also a conflict of interest between the trustee and the other beneficiaries. Say a Molokai house is to be shared between three siblings and they all have different ideas on how to split this up, the beneficiary who is also trustee will be in the middle of a sibling dispute. A neutral third-party will be able to be impartial and all beneficiaries will be on equal footing with each other. This can be a good friend, or an office such as the nonprofit Maximum Legal Corporation, or a for-profit company or bank. Most trust litigation cases stem from feelings of being short-changed or mislead by the trustee. Don’t put your loved ones in that position!

If you want to receive individualized legal advice with regards to trusts, please feel free to contact Eileen M.S. Nims, J.D. at eileen@nimsesq.com or by phone at (808) 664-1834.