When the Tennessee trustee is also a beneficiary: the duties that do not bend

Allowed, and held to the same duties

Nothing in the Tennessee Uniform Trust Code bars a beneficiary from serving as trustee. The duties do not change: the trustee administers the trust solely in the beneficiaries' interests as the terms define them (Tenn. Code Ann. § 35-15-802(a)), and where there are two or more beneficiaries, acts impartially in investing, managing and distributing the trust property, giving due regard to their respective interests (Tenn. Code Ann. § 35-15-803).

Distributions to yourself

Tennessee defines an improper motive in two ways: a trustee refusing to make, or limiting, distributions to beneficiaries other than the trustee out of self-interest when the trustee also holds a beneficial interest subject to a discretionary interest; and a trustee making a distribution to itself as beneficiary in excess of an ascertainable standard when the trust restricts it to one (Tenn. Code Ann. § 35-15-814(a)(1)). For a discretionary interest, a court may review the trustee's distribution discretion only where the trustee acts dishonestly, acts with an improper motive or fails to act when under a duty to do so ((b)(2)) — which is why the improper motive is the line a trustee-beneficiary watches.

Transactions with the trust

A sale, encumbrance or other transaction for the trustee's own account, or one affected by a conflict between the trustee's fiduciary and personal interests, is voidable by an affected beneficiary unless one of the statute's exceptions applies — the terms authorized it, the court approved it, the time to sue ran, the beneficiary consented, ratified or released, or it predates the trusteeship (Tenn. Code Ann. § 35-15-802(b)). A trustee-beneficiary who buys the family home from the trust, or borrows from it, is in exactly that territory.

Consent, and keeping the others informed

A trustee is not liable to a beneficiary for a breach the beneficiary consented to in writing, released or ratified, unless the consent was induced by the trustee's improper conduct or the beneficiary did not know of the beneficiary's rights or the material facts (Tenn. Code Ann. § 35-15-1009). Keeping the current distributees reasonably informed and answering a qualified beneficiary's requests (Tenn. Code Ann. § 35-15-813(a)) is what makes such a consent informed — and information that adequately discloses a potential claim starts the beneficiaries' one-year period (Tenn. Code Ann. § 35-15-1005(a)).

Compensation

A trustee who is also a beneficiary may still be compensated: as the terms specify, or, where they are silent and the settlor or a majority of the qualified beneficiaries have not agreed otherwise, reasonably under the circumstances (Tenn. Code Ann. § 35-15-708(a), (b)). Recording the time and the work keeps that compensation separate from the trustee's share as a beneficiary.

The statutes, verbatim

• Beneficiary's consent, release or ratification

  Tenn. Code Ann. § 35-15-1009 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Compensation of trustees, trust advisors and trust protectors

  Tenn. Code Ann. § 35-15-708 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Duty of loyalty

  Tenn. Code Ann. § 35-15-802 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Impartiality

  Tenn. Code Ann. § 35-15-803 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Duty to inform and report

  Tenn. Code Ann. § 35-15-813 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Exercise of powers over discretionary and other interests; tax savings

  Tenn. Code Ann. § 35-15-814 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

Common questions

Frequently asked questions

Can I be trustee of a trust I inherit from in Tennessee?

Yes. The statute allows it, and the trustee's duties — loyalty (Tenn. Code Ann. § 35-15-802) and impartiality among the beneficiaries (Tenn. Code Ann. § 35-15-803) — apply in full.

May a Tennessee trustee-beneficiary make distributions to itself?

Within the trust's terms. A distribution to itself beyond an ascertainable standard that restricts it, or limiting others' distributions out of self-interest, is an improper motive (Tenn. Code Ann. § 35-15-814(a)(1)), one of the grounds on which a court may review a discretionary decision ((b)(2)).

Does a beneficiary's written approval protect the trustee?

A beneficiary's written consent, release or ratification protects the trustee unless it was induced by the trustee's improper conduct or the beneficiary lacked knowledge of the beneficiary's rights or the material facts (Tenn. Code Ann. § 35-15-1009).

General information about Tennessee law, not legal advice.