Trust and Estates 101: No trust will fail because it doesn’t have a trustee. Thus, if a trust creator (“settlor” or “grantor”) doesn’t designate a trustee but has a beneficiary, the court will appoint a trustee for the beneficiary. Why? Because the beneficiary must be able to hold someone accountable in court if the terms of the trust aren’t met. So, the trustee has an obligation to the beneficiary or, in legal terms, the trustee is in a fiduciary relationship with the beneficiary.
As a fiduciary, the trustee is held to a high standard of duty to the trust and primary beneficiaries. A trustee must act wisely with respect to the trust assets, managing them to both preserve and, if possible, grow the assets. The trustee can’t use the assets for their own benefit, even if they are also a beneficiary, without consent from the other beneficiary or beneficiaries. Additionally, the trustee can’t give the beneficiary’s rights to receive the assets to someone else unless the terms say otherwise.
Example: If the Trust terms say only Beneficiary Barbara can receive a Trust distribution, Collector Carter shouldn’t receive a distribution without a court order. The right to receive that distribution belongs to Barbara only.
Finally, if the trust has multiple beneficiaries, the trustee can’t favor one beneficiary’s needs over the other unless, again, the trust dictates such. This is one reason why, occasionally, bank trustees (“corporate fiduciaries”) are often preferred over close friends or family members. And it’s also why family members sometimes refuse to act – they don’t want to subject themselves to a potential lawsuit.
Therefore, a trustee should be someone the settlor thinks will be loyal to the terms of the trust and not compromised by a relationship with a beneficiary, or a creditor for that matter. This is also why considerable thought should be given to who you name as trustee.
