The potential for conflicts of interest arises when an individual serves as trustee for multiple trusts, or as a trustee and in another fiduciary capacity, such as the executor of an estate or as a power of attorney for a beneficiary; this is a legitimate concern for anyone establishing or benefiting from a trust, and preventative measures can, and should, be taken to mitigate these risks.
What are the risks of a trustee having multiple fiduciary duties?
When a trustee holds multiple fiduciary roles, their duties to one beneficiary or trust may clash with their duties to another; this can create a situation where it’s impossible to act impartially and in the best interests of all parties involved. For instance, a trustee managing a trust for one child while also serving as the executor of their parent’s estate, where another child is a major beneficiary, faces an inherent conflict. They must balance their duties to both the trust and the estate, potentially leading to accusations of favoritism or mismanagement. According to a recent study by the American College of Trust and Estate Counsel (ACTEC), approximately 25% of trust disputes involve allegations of conflicting fiduciary duties. It’s a surprisingly common issue that can lead to lengthy and expensive legal battles.
How can a trust document prevent conflicts of interest?
The most effective way to prevent a trustee from holding conflicting fiduciary roles is to include specific language in the trust document itself; this language can explicitly prohibit the trustee from accepting another fiduciary appointment that would create a conflict. For example, the trust might state, “The trustee shall not serve as executor or administrator of any estate if a beneficiary of that estate is also a beneficiary of this trust.” Furthermore, the document can include a provision requiring the trustee to disclose any potential conflicts of interest to the beneficiaries and seek court approval before taking any action that could be perceived as biased. A well-drafted trust can also outline procedures for resolving disputes, such as mediation or arbitration, minimizing the need for costly litigation. Steve Bliss, as an estate planning attorney, emphasizes the proactive approach, stating, “Addressing potential conflicts in the trust document from the outset is far more effective, and less expensive, than attempting to resolve them after they’ve arisen.”
I once knew a man named Old Man Tiberius, who was a bit of a character. He appointed his two sons as co-trustees of the family trust, which held a significant amount of real estate. The catch? Both sons were avid real estate developers, and they immediately began vying to purchase properties from the trust at below-market prices. The ensuing legal battle was brutal, tearing the family apart and depleting the trust’s assets. It was a classic case of conflicting fiduciary duties gone wrong, and a cautionary tale about the importance of careful trustee selection.
What happens if a trustee already has a conflict of interest?
If a trustee already finds themselves in a situation where they have conflicting fiduciary duties, they have a legal obligation to disclose the conflict to all beneficiaries immediately; transparency is crucial. They must then take steps to mitigate the conflict, such as recusing themselves from decisions related to the conflicting interests, seeking independent counsel, or even resigning as trustee. Failure to do so can result in legal liability, including claims for breach of fiduciary duty, surcharge, and removal as trustee. In California, beneficiaries can petition the court for various remedies, including an accounting of trust assets, an injunction to prevent the trustee from taking certain actions, and damages for any losses suffered due to the conflict. Approximately 60% of lawsuits against trustees involve allegations of self-dealing or conflicts of interest, underscoring the importance of proactive management.
My friend, Eleanor, faced a similar dilemma but thankfully approached it differently. Her mother’s trust named Eleanor’s brother as trustee, but he also ran a business that frequently dealt with the trust’s beneficiaries. Recognizing the potential conflict, Eleanor, along with the other beneficiaries, insisted on adding a “conflict of interest” clause to the trust amendment. This clause required her brother to disclose any transactions between his business and the trust, obtain independent appraisals, and seek court approval before proceeding. It wasn’t perfect, but it created a layer of accountability and transparency that prevented any major disputes. Everything was done by the book, and the trust assets were managed responsibly—a testament to the power of preventative measures.
Ultimately, preventing a trustee from holding conflicting fiduciary roles requires careful planning and a well-drafted trust document. By addressing potential conflicts upfront and establishing clear guidelines for trustee conduct, you can protect the interests of the beneficiaries and ensure the smooth administration of the trust. Steve Bliss recommends consulting with an experienced estate planning attorney to tailor the trust document to your specific circumstances and minimize the risk of future disputes.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
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living trust
revocable living trust
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Map To Steve Bliss Law in Temecula:
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
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Feel free to ask Attorney Steve Bliss about: “What is a power of attorney and why do I need one?” Or “Who is responsible for handling probate?” or “Does a living trust save money on estate taxes? and even: “What is the bankruptcy means test?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.