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Trustee vs. beneficiary: What's the difference?
In a trust, a trustee and a beneficiary can be the same person, but they have different legal roles, rights, and responsibilities
Creating a trust is a way to preserve assets for your loved ones while helping them avoid some of the bureaucratic hassles that may happen when you die.
Even if you understand the basics of what a trust is, there’s often confusion about the terms you may encounter in the trust creation process — particularly “trustee” and “beneficiary.” These terms might seem interchangeable, but they’re not. Read on to learn more about trusts, and find out what’s the difference between a trustee and a beneficiary.
In this article:
What is a trust?
A trust is a common financial planning instrument to protect your assets and ensure they’re passed on to the right people when you die. You can transfer assets like property and even a life insurance policy into the trust during estate planning.
The property in the trust can gain value over time if the assets appreciate in value and/or earn interest. The principal is the amount of an asset put into a trust, while income is the amount of money it earns over time.
There are three main parties in a trust: the grantor (or trustor), the trustee, and any beneficiaries. The grantor (or trustor), is the individual who creates the trust and transfers assets into it. As we’ll discuss in detail below, trustees and beneficiaries have different roles, responsibilities, and rights in the trust process. In essence: The trustee looks after the assets in the trust, while the beneficiary receives those assets or their proceeds.
All trusts are not the same. There’s a lot of flexibility when one makes a trust as to who can know what’s in it, when it comes into effect, who controls the assets, who benefits, and whether or not the trust can change over time.
Some types of trusts include:
- Irrevocable trust: An irrevocable trust cannot be changed. An example is a testamentary trust, which cannot be altered once in place.
- Revocable trust: Unlike an irrevocable trust, a revocable trust can be changed. The grantor can revoke or amend the trust at any time.
- Testamentary trust: This kind of trust is also called a will trust. It goes into effect when a person passes away and is often part of a will.
- Living trust: A person creates a living trust during their lifetime. They move their assets into the trust and may use them for their own benefit, depending on the terms. A living trust may be irrevocable or revocable.
- Life insurance trust: This kind of trust is funded with a life insurance policy. Once the life insurance policy is inside the trust, the grantor cannot access the cash value.
- Charitable trust: This trust ensures assets are passed to a charitable organization upon the death of the person who created the trust.
- Blind trust: With this type of trust, beneficiaries do not know the contents of the trust. This is often used to avoid conflict between beneficiaries.
These are just a few examples. Other kinds of trusts include special needs trusts to pay for medical care and spendthrift trusts that limit beneficiaries’ access to assets to preserve those assets.
Why create a trust?
Unlike a will, a trust can help your family to avoid the probate process after you pass away. During probate, the will is declared valid by a court and assets are distributed — and the process can take several months.
With a living trust, for example, you can act as the trustee during your lifetime and still use and benefit from the property inside the trust. When you die, the trust remains in place, and the person you name to be the trustee after you, called the “successor trustee,” distributes the assets without the need to go to probate court.
A trust can also come with tax advantages, depending on the type and purpose of the trust. For example, property put into a trust may be taxed when it goes into the trust but not when the trustee changes or the property is distributed. If the property is passed down as part of an estate outside of a trust, it may be subject to estate tax.
A trust can also help ensure money is set aside for a loved one with specific needs, such as a child needing lifelong medical care, without worrying that the assets may go to another person or be misallocated after your death.
Now that we have a brief overview of what different kinds of trusts can look like, let’s dive more deeply into the people involved.
What is a trustee?
A trustee is a person tasked with handling all aspects of maintaining the trust. There are many parts to this. They may have the responsibility to:
- Distribute assets to beneficiaries
- Maintain the assets
- File and pay taxes on the trust
- Record all trust activity
- Invest funds in the trust
- Sell property in the trust
These duties can mean active involvement in the trust to support beneficiaries. For example, a trustee may have the discretion to invest fund assets, but they cannot do so recklessly or frivolously — they are compelled to act in the best interests of the beneficiaries.
The responsibilities and discretion of the trustee often depend on the wording of the trust. When the grantor creates the trust, they can outline the specific nature of the trustee’s role in maintaining and distributing the assets.
The job of the trustee can be substantial. Often, they will receive monetary compensation for taking on this role. The amount of money they receive is often outlined in the trust document, but if it is not, state law often imposes a compensation schedule.
A trustee can also use trust funds to hire expert help to do their job. For example, they may hire a trust attorney, accountant, or tax preparer.
Trustees can resign, or a beneficiary may ask the court to remove them. If you are a trustee and don’t want the role any longer, you may have to ask a court to appoint someone else if no alternative trustee is named in the trust document.
What is a beneficiary?
The beneficiary is an individual who receives assets or proceeds from the trust. It’s important to note that some trusts may have limits, such as mandating a child not receive money out of the trust until they reach the age of 25 or have finished college.
In general, a beneficiary has some rights such as:
- Receiving timely payments from the trust
- Requesting a full accounting of the trust
- Obtaining information about the trust
A beneficiary can also take some steps to change the trust, including:
- Requesting that a court remove a trustee
- Requesting that a court dissolve the trust, with the consent of all other beneficiaries
A beneficiary does not need to be a person. It may also be an organization, such as a charity, that receives proceeds from the trust.
Can a trustee and a beneficiary be the same person?
The trustee and beneficiary can be the same person. But that depends on the trust. In the case of a revocable trust, the trustor, trustee, and beneficiary are sometimes all the same person. With an irrevocable trust created during one’s lifetime, the grantor usually chooses someone else to be the trustee.
One example of when the trustee and beneficiary are the same is when a grantor has multiple children and creates a trust for them. All their children may be beneficiaries, but the grantor may choose one of them to be the trustee.
This situation can be convenient, but it may also lead to conflict, as the trustee has an interest in the assets they manage. If other beneficiaries think that interest clouds their judgment in how they choose to manage, they can take the trustee to court for breach of contract.
Haven Life: Life insurance for your family’s future
Haven Life is devoted to making life insurance less hard. That’s why we offer a mostly online application process, simple tools like an online life insurance calculator and free quote tool, and competitive rates so your term life insurance policy is as affordable as possible.
But we also want to make life itself less hard by offering something for you while you’re still living. Enter Haven Life Plus, a bonus rider available to eligible Haven Term policyholders. It includes a suite of services that make life less hard — including no-cost trust or will services from the online experts at Trust & Will.
Start by getting a free online life insurance quote today.
About Catherine LoveringRead more by Catherine Lovering
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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