Trustee vs. Beneficiary: 3 Ways to Reduce Conflict

A central purpose of any trust is the deliberate management and transfer of assets. However, disputes between beneficiaries and trustees—those tasked with administering a trust's assets—can complicate this process. Let's look at a few common sources of conflict and ways that grantors—trust creators—can help avoid them.

Specificity and intent matter when outlining a trust's provisions. Potential pitfalls include:

• Ambiguous trust terms: Trust documents tend to use standard language to guide the distribution of assets; however, there's room for interpretation. Take the commonly used phrase "health, education, maintenance, and support." If "education" is not specifically defined, the trustee may be required to interpret it as the highest level of education attained by the grantor. Similarly, "maintenance and support" is generally understood to mean maintaining a beneficiary's standard of living at the time the trust comes into effect—not improving upon it—unless otherwise specified.
• Investment choices: A trustee is generally tasked with investing a trust's assets, often according to the grantor's wishes. However, beneficiaries may disagree on risk tolerance and specific strategies, such as buying cryptocurrencies or other alternative investments. If substantial losses occur and a beneficiary believes trust assets are being mismanaged, they could pursue the matter in court. The trustee might even be held personally liable if the court finds they breached their financial duty.
• Conflicting interests: A trust often has primary beneficiaries, who receive support from a trust during their lifetimes or for a period of time, and remainder beneficiaries, whose claims kick in once the primary beneficiaries' interests have been satisfied. This often leads to confusion around how to invest a trust's assets. For example, should the trustee prioritize income generation for the primary beneficiary or growth for the remainder beneficiaries? Unless the trust specifies that one party's interests supersede all others, the trustee may be required to consider all beneficiaries, potentially putting them at odds.
   

Though you may not be able to see around every corner, here are some best practices to consider:

• Define every term: Good trust documents often contain an appendix with clear definitions of a trust's terms—as well as the grantor's reasoning. For each beneficiary, explain your rationale for including them, the type of support you're providing, and any restrictions on accessing the funds. For example, if you want to limit a beneficiary's access due to a history of substance abuse, say so explicitly. The trustee must follow the instructions in the trust document, so the more definitions, details, and explanations you put in writing, the more likely your trust will overcome any legal challenges, if not avoid them altogether.
• Name multiple trustees: Trustees shoulder a sizable responsibility that could have personal and legal repercussions, but they don't need to go it alone. For example, if you wish to name your child as an administrative trustee but worry about their financial acumen—or lack thereof—you can name a co-trustee tasked specifically with investing the trust's assets. Similarly, families concerned about potential conflicts may wish to appoint a corporate trustee, who can explain the legal intricacies, as well as remain impartial.

• Communicate your intentions: Talking about estate plans can be hard for some families, but discussing your wishes now, while you're here to answer questions and receive feedback, can help minimize frustrations after you're gone.

Aside from maintaining harmony among your heirs, thinking through some of the thornier issues in advance can also help preserve the value of your estate. After all, if beneficiaries decide to sue, a trustee must use the trust's holdings to defend both the trust and themselves.