Join 1000s of Professionals
FREE MEMBERSHIP

CPA Education & Training
Access to Forms & Tools
CPA Articles & White Papers
CPA News, Jobs, Blogs & More

Fiduciary Duty

Often a Trustee is confronted with conflicting interests of beneficiaries. However, the Trustee has a fiduciary duty of impartiality. In light of that duty, how does the Trustee make principal distributions to one class of beneficiaries without impairing the rights of the income beneficiaries?

Discretionary
How much control does the language give the trustee? How much control does the Trustor wish the Trustee to have? Does the language just state HEMS or is it more descriptive? The more specific the language more likely the Trustee is to apply it properly. Often a trust will use the term “Best interests of the beneficiary.” This is a very subjective term. The Beneficiary and the Trustee are likely to disagree as to what is in the “best interest” of any particular beneficiary. What does it mean? A description of that term by the Trustor is helpful for the Trustee in determining what the Trustor intended.

Mandatory
How does the Trustee protecting the beneficiaries from themselves? Is there specific language that assists the Trustee? For example language that addresses spendthrift behavior, substance abuse and irresponsible beneficiaries or their spouses may prevent a large outright distribution that will do nothing to further the intent of the Trustor. When is outright not necessarily outright? Occasionally the Trustee may find a way to make the mandatory outright distribution in such a manner that prevents the beneficiary from using it in a harmful or wasteful manner. The Trustee may distribute fractional interest in assets or illiquid assets in kind that are not easily liquidated by the beneficiary. Thereby preventing or at least slowing down the beneficiaries’ ability to use the proceeds for unintended purposes. The Trust agreement may provide language that allows the Trustee to withhold an outright distribution if it believes certain circumstances exist. Exp: "Upon her achieving the age of 30 distribute $30,000 in cash to my daughter Judy unless she has failed to complete her doctorate degree." If the language allows, the Trustee may distribute to another trust for the benefit of same beneficiary that has more restrictive language. The Trustor may insert language giving power to a Trust Protector within the Trust Agreement to amend the distribution provisions of the trust. Giving that Trusted person the ability to withhold distribution from those beneficiaries who would not appropriately benefit from it.

Related Products