Can a Trustee Also be a Beneficiary

Yes, a trustee can also be a beneficiary, and they often are. But in some types of trusts, a trustee cannot be a beneficiary.

Many trusts have the same people fulfilling multiple roles. As lawyers like to say, the same person can “wear many hats.” We often have the person who made the trust fulfill multiple roles, the same person can be the maker of the trust, the trustee and the beneficiary.

Let’s say John made a trust, becoming its first trustee and beneficiary. After John’s death, his son Tom becomes the trustee and beneficiary. That is a perfectly reasonable scenario.

However, although a trustee can also be a beneficiary in many types of trusts, for some types of trusts the rules about trustees and beneficiaries get more complicated and you would need to speak to a New York trust attorney to find out the details.

For example, in a Medicaid trust, the person who made the trust has limitations on becoming the trustee and beneficiary, so that the trust complies with Medicaid rules. As another example, in some spendthrift trusts, the trustee cannot be a beneficiary, so that creditors don’t have access to the principle of the trust.

As a beneficiary, the beneficiary-trustee is entitled to distributions of trust assets if the trust authorizes such distributions. Here are some examples of the different types of trust distribution arrangements for beneficiaries:

• An immediate distribution upon the death of the person who made the trust
• An immediate distribution upon reaching a certain age (for example, 18 or 25)
• A distribution of principal
• A distribution of income
• A monthly distribution
• A distribution in some point in time

Just like any other trustee, the beneficiary trustee has a duty of utmost fiduciary responsibility to the other beneficiaries of the trust. Just like any other trustee, a trustee-beneficiary is not supposed to intermingle his assets with estate assets, withdraw funds from the trust for his own use not in accordance with trust terms and steal from the other beneficiaries of the trust in any way. When a trustee takes money from the trust that they are not supposed to take, that’s called stealing even though some of the money they took ultimately belong to them. For example, a man left a trust for his four children, and one of the children is a trustee. Can the trustee-child withdraw cash from the trust and say that he is just withdrawing his own cash? The answer to that is absolutely not. Even though the trustee is one of the beneficiaries of the trust, at the end of the day the trust is not his. The trust belongs to all the beneficiaries. So if a trustee uses the trust’s money for his own needs in any way or transfers trust money to himself, he is considered by the law to be taking everyone’s money, not just his own. As an example, if he takes four thousand dollars, he is not taking four thousand dollars of his own money. He is stealing a thousand dollars from each of his siblings. If he takes a penny, most of that penny belongs to the other beneficiaries of the trust.

What can happen if a trustee who is the beneficiary neglects good advice and does withdraw cash from the trust account? Nothing good. The trustee can be removed by the court. The court will force the trustee to return the money. The court might order the trustee to pay for his own attorneys’ fees as opposed to using trust funds to pay for his attorney’s fees. The judge may even order the trustee to pay the beneficiaries’ attorneys’ fees. What is scarier is that the trustee can even be criminally prosecuted for stealing. That’s right, a criminal prosecution even if the trustee is one of the beneficiaries of the trust and even if the amount he took is less than his stake in the trust account. The judge can refer the case to the District Attorney’s office, which has the power to prosecute the case in criminal court, although that rarely happens.

To sum up, in some trusts a trustee can also be a beneficiary, and in some trusts that cannot be done. And always remember that whether a beneficiary or not, a trustee has to always be careful to follow fiduciary rules of the trust.

If you need the services of a New York trust attorney, you can send us an email at [email protected] or call us at 212-233-1233.