Trusts are a fundamental part of estate planning and asset protection in England and Wales. They allow individuals to manage and distribute assets in a controlled and flexible manner. One question that often arises is whether a beneficiary of a trust can also act as a trustee. The answer is yes—but with important caveats.
At Blackstone Solicitors, we regularly advise clients on the creation, administration, and management of trusts. In this article, we explore the legal and practical implications of a beneficiary also serving as a trustee, and what this means for the integrity and operation of the trust.
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Understanding the Roles: Trustee vs Beneficiary
Before examining whether one person can fulfil both roles, it is important to understand the distinction between a trustee and a beneficiary.
A trustee is the legal owner of the trust property. They are responsible for managing the trust in accordance with its terms and in the best interests of the beneficiaries. Trustees have fiduciary duties, including the duty of loyalty, prudence, and impartiality
A beneficiary is the person (or group of people) who benefits from the trust. They may receive income, capital, or both, depending on the type of trust and the terms set out in the trust deed
Can a Beneficiary Be a Trustee?
Yes, under English law, a beneficiary can also be appointed as a trustee. This is not uncommon, particularly in family trusts where a parent may set up a trust for their children and appoint one of the children as both a trustee and a beneficiary.
However, this dual role must be approached with caution. While it is legally permissible, it can give rise to conflicts of interest, especially where the trustee-beneficiary is required to make decisions that affect their own entitlement or that of other beneficiaries.
Legal Considerations
1. Fiduciary Duties Must Be Maintained
Trustees owe strict fiduciary duties to all beneficiaries. A trustee who is also a beneficiary must still act impartially and in the best interests of all beneficiaries, not just themselves. This can be challenging if the trustee stands to gain personally from a decision.
For example, if a discretionary trust allows the trustee to decide how much income each beneficiary receives, a trustee-beneficiary must not favour themselves over others.
2. Conflict of Interest
The law recognises that conflicts of interest may arise when a trustee is also a beneficiary. In such cases, the trustee must:
- Disclose the conflict
- Refrain from participating in decisions where they have a personal interest
- Seek independent advice or court approval if necessary
- Failure to manage conflicts properly can lead to legal challenges and even removal as trustee.
3. Number of Trustees
It is generally advisable to appoint more than one trustee, especially where one or more trustees are also beneficiaries. This provides a system of checks and balances and helps ensure that decisions are made fairly and transparently.
The Law Society recommends having at least two trustees, and up to four is common practice
4. Type of Trust
The suitability of a beneficiary acting as trustee may depend on the type of trust:
- Bare Trusts: These are simple arrangements where the beneficiary has an absolute right to the trust assets. In such cases, the beneficiary may act as trustee without issue.
- Discretionary Trusts: These give trustees wide powers to decide how and when to distribute assets. A trustee-beneficiary in this context must be especially careful to avoid self-dealing.
- Interest in Possession Trusts: Here, a beneficiary has a right to income from the trust. If they are also a trustee, they must ensure that their decisions do not unfairly prejudice other beneficiaries.
Practical Implications
1. Decision-Making
A trustee-beneficiary must be able to separate their personal interests from their fiduciary responsibilities. This can be difficult in practice, particularly in emotionally charged family situations.
Where decisions involve the trustee’s own entitlement, it may be appropriate for them to recuse themselves from the decision-making process.
2. Transparency and Record-Keeping
Maintaining clear records of trustee meetings and decisions is essential. This helps demonstrate that decisions were made in accordance with the trust deed and not influenced by personal interests.
3. Disputes and Litigation
Trusts involving trustee-beneficiaries are more susceptible to disputes, especially where other beneficiaries feel they are being treated unfairly. Legal advice and mediation can help resolve such issues before they escalate.
Case Study: Family Trust with Sibling Trustees
Consider a trust set up by a parent for the benefit of their three children. One child is appointed as a trustee and is also a beneficiary. The trust allows the trustees to distribute income at their discretion.
In this scenario:
The trustee-beneficiary must act in the best interests of all three siblings.
They should not make decisions about their own entitlement without consulting the other trustees.
If a dispute arises, the trustee-beneficiary may need to step aside from certain decisions or seek legal advice.
This example illustrates the importance of balanced trustee appointments and clear trust terms.
Advantages of a Beneficiary Being a Trustee
Despite the potential challenges, there are also advantages to appointing a beneficiary as a trustee:
- Personal knowledge: They may have a better understanding of the needs and circumstances of the beneficiaries.
- Cost savings: Appointing a family member may reduce the need for professional trustees.
- Continuity: A beneficiary-trustee may be more invested in the long-term success of the trust.
When It May Not Be Appropriate
There are situations where it may be inappropriate for a beneficiary to act as trustee:
- Where the trust involves complex financial arrangements or high-value assets
- Where there is a history of family conflict
- Where the beneficiary lacks the skills or impartiality required
In such cases, appointing an independent professional trustee may be the better option.
How Blackstone Solicitors Can Help
At Blackstone Solicitors, we provide expert legal advice on all aspects of trust law, including:
- Drafting trust deeds
- Advising on trustee appointments
- Managing conflicts of interest
- Resolving disputes between trustees and beneficiaries
We understand the sensitive nature of family trusts and are committed to helping our clients create robust, fair, and legally sound arrangements.
Conclusion
A beneficiary can legally be a trustee of a trust in England and Wales, but this dual role must be managed with care. While it can offer practical benefits, it also raises the risk of conflicts of interest and potential disputes.
With the right legal advice and safeguards in place, it is entirely possible for a beneficiary to serve as a trustee effectively and ethically. At Blackstone Solicitors, we are here to guide you through every step of the process.
If you are considering setting up a trust or reviewing an existing arrangement, contact our team today for tailored, professional advice.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of setting up a trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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