Taxation & Estate Planning

Who's The Boss? The Fiduciary-Beneficiary Relationship

By Joel A. Schoenmeyer

If you grew up in the 1980's like I did, you know that the question "Who's The Boss?" has a few possible answers: Angela, Tony, or maybe Mona.

But on a more serious note, the question of "Who's the boss?" in a probate or trust context is more difficult to answer. On the one hand, you have the fiduciary (trustee, executor, or administrator); on the other hand, the beneficiaries. If there's a conflict between the two, who wins? Does one always control?

Here's the difficulty: the relationship between fiduciary and beneficiary is not a straightforward one. A fiduciary does have title to property, and handles the administration of the estate or trust. Some fiduciaries think this means that they are "in charge," and they attempt to make beneficiaries feel like second-class citizens. This isn't right. While a fiduciary is in one sense "the boss," they are also required to follow the terms of the Will or trust, and also owe a number of duties to the beneficiaries.

To take an example: a trustee may have title to real estate, but the trustee might be required (under the terms of the trust instrument) to sell the real estate and distribute all or a portion of the net proceeds to the beneficiary. The trustee HAS to do this, or risks running afoul of the law.

That being said, the beneficiaries get the benefit from trust or estate property, but may not be authorized to interfere with the day-to-day administration. A typical Will or trust may allow a trustee to sell real estate without requiring beneficiary consent. (Of course, if the sale is done incorrectly for some reason, the beneficiary may have some legal recourse, via objecting in a court proceeding.)

Full post as published by Death and Taxes Blog on August 24, 2010 (boomark / email).