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Posted on October 24, 2023 in asset protection,estate planning
In a trust, the successor trustee, or the person who will take over the estate of a loved one when they pass, is also considered a beneficiary or someone who will inherit assets due to the trust. When the successor trustee is given certain responsibilities to the trust, yet they have their own self-interests they’d prefer to manage, this is considered a conflict of interest.
The term “conflict of interest” can understandably become skewed and confusing to understand. We’d like to outline what this situation means exactly and how you can avoid it.
The trustor, or the person creating the trust, most often chooses a loved one or family member to become the trustee so their estate is taken care of when the trustor passes on. Should the trustee pass away, a successor trustee can be brought in, and they may already be a beneficiary.
However, some courts may not allow for a loved one to become both the trustee and beneficiary. While some courts may allow it as they understand the issue at hand, courts will also pay close attention to the situation, so a conflict of interest is unlikely to arise.
After a trustee passes away, a successor trustee is appointed to take over the estate of the original trustor. A successor trustee is required to perform various actions according to the trust set by the trustor. These requirements can include:
In other words, the successor trustee should prioritize the beneficiaries’ interests over their own and should not try to gain any advantages as the successor trustee. For instance, if they try to sell an asset below market value to another family member, this is considered a violation of the trust, meaning they can be held liable for the damages.
Should the successor trustee be mixing their personal interests and accounts with the trust’s, you have legal options available to hold them accountable for what they’re doing. For example, you can submit a letter for trustee removal, meaning the court will investigate the issue and determine if the trustee is acting in bad faith.
Also, you can create a plan that outlines what will happen to the successor trustee before the trustor’s or trustee’s death if they start a conflict of interest. This may give them more incentive to act responsibly as the trustee.
The smartest method of avoiding conflicts of interest, arguably, is to hire a trustee who is independent from the family. They’ll have their own views and beliefs and are only focused on doing what’s outlined. They won’t know you or the beneficiaries personally, giving them no incentive to act unfairly. Finally, make sure all accounts related to the assets are regularly updated so everyone is able to stay on the same page.
A: A successor trustee is a person or institution who takes over the management of an estate when the original trustee has passed away. The successor trustee may also be a beneficiary in the trust agreement, and while they have various responsibilities to address, they must do so without causing a conflict of interest. Their responsibilities will be outlined by the trust agreement, meaning the requirements may adjust depending on the situation.
A: A conflict of interest arises when a trustee, who is supposed to abide by specific regulations, instead opts to benefit their own interests. For example, if a trustee tries to sell assets meant for other beneficiaries for their own profit, this can be considered a conflict of interest and result in the trustee being punished and removed from the trust. A trustee should be fair and abide by the terms clearly stated in the trust to avoid a conflict.
A: By default, no. Just because a successor trustee is a beneficiary doesn’t mean that there is automatically a conflict of interest. A trustee who goes along with the terms set by the trust without trying to profit or manipulate any aspect to their advantage is not involved in a conflict of interest. When the trustee is unfair or manipulative, they can be charged with a conflict of interest.
A: No, a trustee cannot remove a beneficiary unless very rare circumstances are met. However, most of the time, whoever is listed as a beneficiary is considered a beneficiary and cannot be removed via a trustee’s judgment. This may be grounds for conflict of interest in some scenarios. If there is a dispute among beneficiaries and the trustee believes removing one is viable, they’ll need to speak with a lawyer immediately.
Sometimes, the term “conflict of interest” gets overused in situations where it doesn’t apply. The truth is that if a trustee is trying to manipulate the trust agreement to their own benefit, this can lead to a conflict of interest. These disputes take attention to detail and time to address and resolve, and doing this alone is quite complicated. Instead, you should consider speaking with a lawyer immediately.
At Ken R. Ashworth & Associates, we work closely with clients across Nevada to protect their assets and ensure trusts are adhered to at all times. If you believe a successor trustee is attempting to take advantage of the situation, resulting in a conflict of interest, we’d like to hear from you immediately. Contact us today to schedule a consultation.
