When setting up a trust, you are required to name both a trustee and a beneficiary. The beneficiary is the person who receives payouts from the trust. The trustee, on the other hand, is the person who makes those distributions.
In some cases, this means the trustee is in charge of deciding when distributions can be made, such as with a discretionary trust. In other situations, you leave instructions for that trustee, such as telling them that the beneficiary can only use the money to pay for their educational costs.
Let’s say you are setting up a trust for your youngest child. It may be tempting to name one of their older siblings as the trustee, knowing that they already have a relationship with the beneficiary. It is also free to name a family member, compared to paying someone to be the trustee. But why would this be problematic?
It can lead to estate disputes
The issue is that disputes are more likely when siblings are both involved with the trust. Maybe they have always had something of a sibling rivalry. Maybe the beneficiary will simply be resentful that the sibling gets to be in charge of their inheritance. Perhaps the siblings will argue about what you would have wanted as a parent, leading to disputes over how the trust can be used.
It’s not that these types of disputes cannot occur if the trustee is not related to the beneficiary. They can, and they do. But it is just more likely when the two are siblings.
Choosing the correct trustee is just one step to take while creating your estate plan. Make sure you know what legal options you have.
