Trust and Estates 101: No trust will fail because it doesn’t have a trustee. This means that if a grantor (trust creator) 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 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 very high standard of duty to the trust beneficiary, more so than the subprime lending brokers and bankers. A trustee must act wisely with respect to the trust funds, managing them so as to both preserve and grow the funds, if possible. Preserving is good in this economy. The trustee cannot use the funds for his or her own benefit without consent from the beneficiary. The trustee also cannot give the beneficiary’s rights involving the funds to someone else unless the terms say otherwise. For example, if the terms say only Beneficiary Barbara can receive a distribution from the trust, Collector Carter cannot receive a distribution – the right to receive that distribution belongs to Barbara only. Finally, if there is more than one beneficiary, the trustee cannot favor one beneficiary’s needs over the other unless, again, the trust dictates such. This is a reason why bank or corporate trustees are often preferred over close friends or family members. Therefore, in deciding on a trustee, the party should be someone the grantor 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.