Difference Between Trustee and Beneficiary

By: | Updated: Aug-4, 2023
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Many individuals, as they age or plan for their financial future, seek legal documentation to ease the burden of uncertainty on their loved ones. Building trust is part of this process. A trust is a fiduciary arrangement that specifies the manner and timing of an individual’s property distribution to their heirs. Unlike with a will, the assets transferred to a trust may be available to the beneficiaries sooner. There is a separate tax identification number and return for the trust. There are typically three people involved in establishing a trust: the trustor, the trustee, and the beneficiaries. People need to be aware of the distinctions between the responsibilities of trustee and beneficiary, despite the fact that the trustee may also be a beneficiary. Because of this, we are going to describe the distinctions between them in this article.

Difference Between Trustee and Beneficiary

Who Is a Trustee?

A trustee is a person or organization designated to manage and protect the beneficiary’s interest in the trust’s assets. A trustee is the designated person or organization having legal custody and discretionary power over all trust assets. The trustee is responsible for keeping the trust assets safe and managing them in accordance with the trust deed. The trustor delegates decision-making authority to the trustee, who acts in the beneficiary’s best interests on behalf of the trustor. A trustee has the duty and legal authority to act only in the best interests of the beneficiary and in compliance with the trust deed. Things like bank accounts and real estate may fall under this category.

Who Is a Beneficiary?

One who is entitled to receive funds, property, or other advantages from a trust is called a beneficiary. A person or entity who is not the legal owner of a trust but who does have an equitable stake in the trust’s property or assets is called a beneficiary. So, the recipient acquires the power to utilize the property without taking title to it. The person or people you choose to receive the trust’s assets are called the beneficiary or beneficiaries. A beneficiary is the designated recipient of a life insurance policy’s proceeds in the event of the policyholder’s death. A beneficiary may receive trust assets, but that does not give them any say over how those assets are managed. In a legally enforceable instrument, the owner or grantor specifies the parameters of the trust agreement, including what the beneficiary will get and when.

Differences Between Them

The basic definition outlines the primary distinctions. Nonetheless, issues such as who has more right, a trustee or the beneficiary, and what each party’s responsibilities are often lead people astray and cause confusion. Due to the fact that this is the case, we will now look at some other differences that may be found between the two.

Role

While the beneficiary may have a legal claim to trust assets, the trustee really has a beneficial interest. A trustee’s role is limited to that of a custodian, managing and administering the trust’s assets on behalf of the beneficiary. A person or entity other than the trust’s legal owner who has an equitable stake in the trust’s property or assets is called a beneficiary.

Duties

Trustee authority is limited to carrying out the provisions of the trust and acting in the best interests of the beneficiary at all times. A trustee’s primary responsibilities include trust administration, asset investment, and distribution of trust benefits to beneficiaries. The trustee’s duty is to identify the beneficiary’s genuine requirements and meet those needs. While beneficiaries normally have no obligations, they must be familiar with and abide by the trust’s stipulations and work together with the trustee if they are to obtain any advantages.

Rights

The trustee’s legal standing is determined only by the terms of the trust document and the trustee’s observance of those terms. A beneficiary has only equitable ownership of a trust, but a trustee is required for the trust’s legal ownership. The trustee is the legal owner of the trust and is therefore entitled to invest the assets, taking care to hold them in a diversified portfolio that strikes a fair balance between the expected returns and risks associated with those investments.

The trust’s beneficiaries enjoy legal protections as well, including the right to be informed of the trust’s existence and the obligation to uphold the trust’s stated provisions. They have the right to see the trust’s financial records, which include a full accounting of the trust’s assets and liabilities. In addition, if a beneficiary feels the trustee is not fulfilling his obligations or has broken the terms of the agreement, the beneficiary has the right to petition the court for help in exercising his or her rights under the trust.

Difference Between Trustee and Beneficiary

Can a Person Be Both Trustee and Beneficiary?

Just as people sometimes confuse different types of lawyers and think they are all the same person, it also happens with trustees and beneficiaries. But it can be true – it is possible for a single individual to have both the trustee and beneficiary roles. On the other hand, it is dependent on trust. The trustor, trustee, and beneficiary of a revocable trust may all be the same person. The grantor of a lifelong irrevocable trust often appoints another person to act in that role. When a grantor establishes a trust for his or her children, for instance, that kid may also serve as the trustee. The grantor may name any of his or her offspring as beneficiaries or trustees. The trustee has a vested interest in the assets they oversee, which may be beneficial but sometimes causes friction. Other beneficiaries may sue the trustee for breach of contract if they believe the trustee’s conflict of interest is influencing management decisions.

By establishing trust, you may protect your loved ones’ financial security and save them from the administrative headaches that may arise after your passing. Even if you have a firm grasp on the concept of a trust, the words “trustee” and “beneficiary” may leave you scratching your head. These two phrases may seem similar, yet they have important distinctions. Hopefully, you’ve gained a better understanding of trusts and the distinction between a trustee and a beneficiary as a result of reading this article.

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