Wednesday, February 17, 2016

Individual Successor Trustee-Conflict Of Interest

Many people who establish Trusts prefer to nominate an individual, often a child or other family member, as a Successor Trustee of their Trust in the event of their death.  In this situation, the Successor Trustee is often also a beneficiary of the Trust.  A conflict of interest exists in that the individual is, on one hand, a Trustee with a number of duties and responsibilities to the Trust and its beneficiaries, and on the other hand the individual is a beneficiary of the Trust with his or her own self-interests. Normally a Court does not allow conflict of interest situations.  However, Courts recognize the fact that a person creating a Trust often wants a child or family member to serve as Successor Trustee and that the person is also one of the primary beneficiaries of the Trust.  The Court allows this type of conflict of interest, but imposes a number of duties and responsibilities on the Successor Trustee.  Some of these duties are:

       Loyalty – Trustee must administer the Trust in the interest of the Trust beneficiaries, deal fairly and impartially in Trust matters, have no self-dealing and no other conflicts of interests, and must communicate any material facts to the Trust beneficiaries.
       Impartiality – Trustee must administer a Trust so as to afford each beneficiary with the same level of benefits and protection.
       Administer Trust – Trustee must administer the Trust per the terms of the Trust agreement diligently and in good faith, must manage and preserve and make productive the Trust assets, and must account for the Trust assets to the beneficiaries.
       Identify & Segregate Trust Property – Trustee must not commingle Trust assets with non-Trust assets, and must keep Trust property separate and distinct from other property.

In summary, the Successor Trustee must always put the interests of the Trust and its beneficiaries ahead of his or her own self-interests, and must not take personal advantage of his or her position as Successor Trustee.  For example, a Successor Trustee could not sell a Trust asset such as a vehicle at a below market value to his or her own spouse or child. If the Court finds that a Successor Trustee has violated one of his or her duties and damaged the Trust or its beneficiaries, the Court will hold the Successor Trustee personally liable for such damages.       


At the law offices of Jeffrey Burr, we have many years of experience assisting and protecting individual Successor Trustees in the administration of a Trust after the death of a Trustor.  One of our main objectives in doing so is to educate the Successor Trustee as to his or her many duties and responsibilities so that he or she does not unknowingly violate one or more of the duties imposed upon a Successor Trustee.  

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