You may rely on one of your children to handle financial matters more than anyone else in your family. That can make the person seem like a natural choice to serve as trustee. But what if that child will also inherit from the trust? Can a trust beneficiary be a trustee?
Yes. A trust beneficiary can be a trustee in Virginia. However, Virginia law does not allow the same person to be both the sole trustee and sole beneficiary of a trust. A beneficiary who serves as trustee must also follow the trust document and comply with the fiduciary duties Virginia law imposes on trustees.
The more important estate planning question may not be whether you can name a beneficiary as trustee, but whether that person is the right trustee for your family situation.
At a Glance
- Virginia law allows a beneficiary to serve as trustee, but the same person cannot be both the sole trustee and sole beneficiary.
- A beneficiary-trustee must follow the trust document and comply with the fiduciary duties imposed on trustees.
- Conflicts can arise when a trustee’s decisions affect their own financial interest and the interests of other beneficiaries.
- Virginia law limits certain discretionary distributions a beneficiary-trustee can make for their own benefit.
- Choosing the right trustee requires considering the person’s judgment, financial abilities, relationship with other beneficiaries, and the complexity of the trust assets.
What Does Virginia Law Say About a Beneficiary Serving as Trustee?
Virginia law does not prohibit a trust beneficiary from also serving as trustee. Family members can play more than one role in an estate plan. A parent might create a trust for three adult children, for example, while naming one of those children as successor trustee.
However, there is an important limitation. Under Virginia Code § 64.2-720, when a trust is created, the same person cannot be both the sole trustee and sole beneficiary. However, the sole beneficiary can serve as successor trustee. The statute also requires a trust to have a definite beneficiary, subject to specified exceptions.
The restriction reflects a basic feature of a trust: the trustee manages property subject to duties involving the beneficiary’s interest. When other beneficiaries or trustees are involved, one person may occupy both roles without eliminating that relationship.
Whether combining the roles is advisable is a separate question. A trustee who is also a beneficiary may have to make decisions affecting their own interest and the interests of other beneficiaries.
What Is the Difference Between a Trustee and a Trust Beneficiary?
A trustee and beneficiary have different roles even when the same person fills both. The settlor creates the trust and establishes how its property should be managed and distributed. A trustee administers the trust. Depending on the trust document, those responsibilities can include managing and investing trust assets, maintaining records, paying appropriate expenses, making distributions, providing information to beneficiaries, and handling other administrative duties.
A trust beneficiary is someone who has a beneficial interest in the trust. Virginia Code § 64.2-701 defines a beneficiary to include a person with a present or future, vested or contingent beneficial interest in a trust, among others.
A beneficiary’s right to receive income or property depends on the trust’s terms and the nature of that person’s interest. Being a beneficiary does not necessarily create an immediate right to receive all trust assets.
When a beneficiary also serves as trustee, the roles remain legally distinct. The trustee cannot disregard their administrative and fiduciary responsibilities simply because they also stand to benefit from the trust.
What Fiduciary Duties Does a Beneficiary-Trustee Have?
Serving as both trustee and beneficiary does not eliminate trustee fiduciary duties. Under Virginia Code § 64.2-763, a trustee must administer the trust and invest its assets in good faith, according to its terms and purposes, the interests of its beneficiaries, and applicable law.
Other important duties include:
- Loyalty: Virginia Code § 64.2-764 requires a trustee to administer the trust solely in the interests of the beneficiaries.
- Impartiality: When a trust has two or more beneficiaries, § 64.2-765 requires the trustee to act impartially in investing, managing, and distributing trust property while giving due regard to their respective interests.
- Prudent administration: A trustee must exercise reasonable care, skill, and caution while considering the trust’s purposes, terms, distribution requirements, and circumstances.
- Protecting trust property: Trustees have responsibilities involving control and protection of trust property.
- Recordkeeping: Trustees must maintain adequate records and keep trust property separate from their own property.
These duties are especially important when a trustee is also a beneficiary. For example, if three siblings are beneficiaries and one serves as trustee, that sibling cannot manage the trust solely to increase their own inheritance or disregard the interests created for the others.
However, acting impartially does not necessarily require identical distributions. The trust document may create different rights among beneficiaries. The trustee must follow those terms while giving appropriate regard to each beneficiary’s interest.
Can a Trustee Make Trust Distributions to Themselves?
A beneficiary serving as trustee does not automatically lose the ability to receive distributions. The trustee’s authority depends on the trust document and Virginia law. Virginia Code § 64.2-776 specifically addresses a person other than the settlor who is both beneficiary and trustee and has discretionary authority to make distributions for their own personal benefit.
Subject to the exceptions in the statute and the trust’s terms, that authority is limited to an ascertainable standard. Virginia law defines an ascertainable standard by reference to an individual’s health, education, support, or maintenance under applicable federal tax law.
This restriction is important when drafting a trust. Giving a beneficiary-trustee overly broad discretion to distribute trust funds to themselves can create fiduciary and tax issues. Clear distribution provisions can define the trustee’s authority and reduce uncertainty about when distributions are permitted.
What Problems Can Arise When a Beneficiary Is Also Trustee?
Naming a beneficiary as trustee can work well when the person is responsible, understands your wishes, and has a good relationship with other beneficiaries. The dual role can also create conflicts that should be considered during estate planning.
Conflicts of interest and self dealing
A beneficiary-trustee may have to make decisions that affect their own financial interest. For example, the trustee may need to approve expenses, make investments, or decide whether a discretionary distribution is appropriate.
Virginia’s duty of loyalty addresses transactions affected by conflicts between a trustee’s fiduciary and personal interests. A trustee also cannot treat trust property as personal property simply because they are a beneficiary. Trust funds and personal funds should remain separate, and transactions involving trust property should be properly documented.
Disputes among family members
Family dynamics can make trust administration more difficult. A sibling may question why the sibling serving as trustee made a particular investment, incurred an expense, delayed a distribution, or interpreted the trust document in a particular way.
Disagreement does not necessarily mean the trustee breached a duty. However, recordkeeping and communication become especially important when the trustee also has a financial interest in the trust.
Discretion over distributions
Broad discretion can also lead to disputes. Other beneficiaries may question whether a trustee-beneficiary is using that discretion according to the trust or favoring their own interests. Clear, objective distribution provisions can give trustees more direction and reduce uncertainty.
What Information Must a Trustee Provide to Beneficiaries?
Virginia Code § 64.2-775 requires trustees to keep qualified beneficiaries reasonably informed about trust administration and material facts necessary to protect their interests. Unless unreasonable under the circumstances, a trustee must also promptly respond to a beneficiary’s request for information related to administration.
The statute creates additional reporting requirements for applicable trusts. Beneficiaries may have rights to request a copy of the trust instrument, and trustees may be required to provide reports describing trust property, liabilities, receipts, disbursements, trustee compensation, and assets. Section 64.2-775(C) requires at least annual reports for specified beneficiaries, subject to the statute’s applicability provisions and certain waiver rights.
Complete records can protect beneficiaries while also helping trustees show that they administered the trust according to its terms and Virginia law.
What Are the Benefits of Naming a Beneficiary as Trustee?
Potential conflicts do not mean a beneficiary is necessarily a poor trustee choice. A family member may already understand your property, wishes, and beneficiaries’ circumstances. When considering how to choose a trustee, look beyond the person’s relationship to you. The right trustee should be able and willing to:
- Exercise sound financial judgment
- Maintain careful records
- Follow the trust document
- Communicate with beneficiaries
- Devote sufficient time to administrative responsibilities
- Obtain professional guidance when necessary
- Separate personal interests from fiduciary responsibilities
The decision should focus on the responsibilities the trustee will actually face rather than simply choosing the oldest child, closest family member, or person who lives nearby.
How Do You Choose the Right Trustee?
The trustee may eventually manage substantial assets and make decisions affecting your family for years. Consider what your particular trust will require. For example, a trust holding financial accounts for adult beneficiaries may require different skills than a long-term irrevocable trust containing real estate, business interests, or complicated investments. A trust giving the trustee significant discretion over distributions can also require considerable judgment.
Family relationships also deserve attention. If siblings have a history of serious disputes, placing one in control of another’s inheritance may create unnecessary conflict even if that person is financially capable.
Depending on your estate planning needs, you might name one family member, co-trustees, another trusted person who is not a beneficiary, or a qualified institution. Co-trustees can provide additional oversight, but disagreement between them can also interfere with administration.
A Virginia trust attorney can help you evaluate the duties created by your proposed trust and whether the person you have in mind is suited to carry them out.
What Can Beneficiaries Do If a Trustee Misuses Their Position?
Trust beneficiary rights include legal protections when a trustee fails to perform required duties. Under Virginia Code § 64.2-759, a beneficiary may petition the court to remove a trustee. Grounds can include a serious breach of trust, persistent failure to administer the trust effectively, and other circumstances specified by law.
Virginia law also provides remedies for breach of trust. Under § 64.2-792, a court may, depending on the circumstances, compel performance or an accounting, suspend or remove a trustee, require restoration of property or payment of money, reduce or deny compensation, or provide other appropriate relief.
A disagreement with a trustee does not by itself establish a breach. The trust document, trustee’s conduct, beneficiaries’ rights, and applicable law determine what legal options may be available.
Frequently Asked Questions
Can the sole beneficiary of a trust also be the sole trustee in Virginia?
A trust cannot be created with the same person serving as both the sole trustee and sole beneficiary. However, the sole beneficiary can serve as successor trustee. Virginia Code § 64.2-720 establishes the requirements for creating a valid trust.
Can my child be both trustee and beneficiary of my trust?
Yes. Virginia law allows a child or other family member to serve as trustee while also being a beneficiary, provided the trust satisfies Virginia’s requirements. Whether the arrangement makes sense depends on the person’s abilities, trust terms, other beneficiaries, and potential conflicts.
Can siblings be trustees and beneficiaries of the same trust?
Yes. A trust may have multiple trustees and beneficiaries. Before naming siblings as co-trustees, consider whether they can make decisions together and effectively manage the trust.
Can a trustee distribute trust money to themselves?
A trustee who is also a beneficiary may receive distributions when authorized by the trust and applicable law. Virginia Code § 64.2-776 places specific limits on certain discretionary distributions a beneficiary-trustee can make for their own benefit.
Does a beneficiary-trustee have to treat all beneficiaries equally?
Virginia law requires a trustee of a trust with two or more beneficiaries to act impartially while giving due regard to their respective interests. The trustee must also follow the rights and distribution provisions created by the trust document.
Can a beneficiary-trustee be paid for serving as trustee?
Virginia law permits trustees to receive compensation. The amount may be governed by the trust terms or, when the trust does not specify compensation, applicable Virginia law. Being a beneficiary does not necessarily prevent the person from receiving trustee compensation.
Can a beneficiary have a trustee removed?
A beneficiary may petition a Virginia court for removal under § 64.2-759. The court may remove a trustee on statutory grounds, including a serious breach of trust or persistent failure to administer the trust effectively.
Can a beneficiary be the successor trustee of a revocable trust?
Yes. A settlor can name a beneficiary as successor trustee, subject to the trust’s terms and Virginia law. The proposed successor should be capable of handling the administrative and fiduciary responsibilities involved.
Is it better to name a family member or an independent trustee?
Neither choice is appropriate for every trust. A family member may know your wishes and beneficiaries well, while an independent trustee may be useful when family conflict, complicated assets, or impartiality concerns could make administration more difficult.
Should I name more than one trustee?
Co-trustees can provide shared decision-making and oversight, but they can also complicate administration. Consider whether the proposed trustees can work together and how the trust document addresses decision-making and disagreements.
Planning Who Will Manage Your Trust? PJI Law Can Help
Choosing a trustee involves more than naming someone you trust personally. That person may eventually manage investments and other property, make distributions, maintain records, communicate with beneficiaries, and carry out instructions affecting your family for years. When a trustee will also be a beneficiary, careful planning can define that person’s authority and address potential conflicts before administration begins.
At PJI Law, PLC, our Virginia trust attorneys help individuals and families create trusts based on their assets, beneficiaries, family circumstances, and estate planning needs. We can help you consider who should serve as trustee and establish distribution provisions that reflect your wishes.
If you have questions about creating or updating a trust, schedule your complimentary consultation by calling (703) 865-6100 or completing our confidential online form.
At PJI Law, you’ll receive white-glove service and personal attention from a team that treats you like family.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.
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