Beneficiary Balancing: How Lawyers Can Manage Multiple Interests

Beneficiary Balancing: How Lawyers Can Manage Multiple Interests

The Estateably Team
October 12, 2023

Administering a trust is a complicated business at the best of times. Even in straightforward cases with a single beneficiary, lawyers acting as trustees must balance plenty of different elements: the trustor’s wishes, regulatory obligations, and the beneficiary's best interests. So what happens when you also have to factor in multiple beneficiaries, each with different needs and circumstances?

In this article, we’ll discuss how lawyers can manage the competing interests of multiple beneficiaries and ensure distributions that conform with the trustor’s intent and are codified in the trustor’s terms. We’ll look at the trustee’s roles and responsibilities, the challenges that may arise, and the best practices to overcome them.

What Are The Trustee’s Roles and Responsibilities?

When you’re trying to navigate the competing interests of multiple beneficiaries, it can be easy to lose sight of the overall role of a trustee. However, reminding yourself of your primary responsibilities is the first step in finding a way through. Here’s what a trustee, or a lawyer acting as a trustee, has to undertake:

1. Carry out the trustor’s wishes

Above all, an attorney is responsible for seeing that the trust maker’s intentions are honored. In some cases, the trust document states explicitly what the beneficiaries should receive (for example, specifying a dollar amount to a particular person every year). Other times, however, the trustee is empowered to exercise their discretion as to when a beneficiary should receive a distribution from the trust.

When you’re trying to reconcile the needs of different beneficiaries or mediate a dispute, the terms of the trust can help you determine each beneficiary’s specific entitlement and guide you towards administering the trust according to the trustor’s intentions to clarify what you need to do. It might be that the trustor intended the trust to fund their children’s education or ensure the ongoing care of a sibling. By taking the trust document as a starting point, you’ll be on the way to finding a fair solution for everyone.

2. Act impartially between beneficiaries

As a trustee, in absence of language in the trust deed to the contrary, you’re responsible for ensuring the assets are distributed fairly among the beneficiaries. For example, if you’re managing a property held in trust during the beneficiary’s lifetime with the intention of passing it down to their children, it would be a breach of impartiality to sell it while they are still alive. You should also take care not to prioritize one beneficiary over the other when making discretionary distributions or withholding distributions.

3. Act in the best interest of the trust’s beneficiaries

A trustee is bound by a responsibility to manage a trust exclusively in the best interests of the beneficiaries. This could be a question of obtaining accurate market valuations for the trust’s property and valuables or making sound financial decisions on behalf of the trust to maximize the return on any investments. It’s also important not to act in your self-interest, for example, by self-dealing (buying the trust’s assets yourself).

What Are The Challenges of Balancing Multiple Beneficiaries?

Managing a trust can be complicated, even with just one beneficiary. But juggling multiple beneficiaries brings its own set of challenges. Here are a few examples of obstacles that you might have to overcome:

1. Different needs

Beneficiaries at different life stages have a range of different needs and goals. For example, one beneficiary might be starting to focus on their retirement plans while another is still looking after school-aged children. As a result, their risk tolerance might vary regarding investments held in trust. The tax implications may also vary between beneficiaries, impacting your decisions.

2. Difficult relationships

Sometimes, beneficiaries have a tricky relationship to start with. It could be that they have a long history of conflict and disagreement, are estranged, or have never met.  In these circumstances, a small disagreement can easily escalate into a larger conflict.

3. Beneficiaries can’t agree

In this scenario, beneficiaries are given an equal share of a property but cannot agree on what to do with it. For example, if a piece of real estate is part of the trust, one beneficiary might want to keep it in the family while the other is counting on their share of the sale price to cover a medical bill or college fund.

4. Different classes

When a trust specifies different types of beneficiaries, it can be tricky to find a fair solution for everyone. For instance, an income beneficiary receives distributions based on income generated, such as interest or property rental income, and might favor investments that result in short-term gains. A remainder beneficiary, on the other hand, is in line to receive the principal and  often may have a longer-term view. These differences can lead to conflict during the administration process.

5. Mediation and dispute resolution

Even when everyone starts with the best intentions, beneficiary disputes can sometimes arise. When this happens, addressing the issue promptly and effectively is important to avoid lengthy delays.

As a lawyer, you might have to take on the role of mediator, meet with the beneficiaries to understand their competing points of view, defuse any tension, and try to find a creative compromise that works for everyone. It’s crucial to remain neutral in these situations and consider everyone’s needs as well as the intentions of the trustor.

There may be times when you must try arbitration or other forms of dispute resolution. These routes can be less formal and more efficient than going to court. It’s essential to ensure that any alternative dispute resolution process is fair and impartial and that all parties know their rights and responsibilities.

Of course, it’s in everyone’s best interests to avoid a dispute in the first place. In the next section, we’ll look at some of the best practices for navigating the different interests of multiple beneficiaries.

What Are Best Practices for Managing Multiple Interests?

1. Set expectations and review the trust document

The first step in managing multiple beneficiaries is to set clear expectations for the trust administration process and timelines involved. If you’re clear and proactive about this at the beginning of the process, you can help manage the expectations of competing beneficiaries, reduce any confusion and frustration, and ensure a smoother administration process.

Next, it’s important to ensure that all beneficiaries understand the terms of the trust: what they’re due to receive, when they can expect to receive it, and any conditions or restrictions attached to entitlements to distributions.

Not only are the regulations governing trusts highly complex, but the trust documents are written in legal jargon that can be difficult for non-lawyers to understand. So it’s crucial to use clear language and fully explain all the rules involved. As a trustee, you are responsible for ensuring the beneficiaries understand their roles and any tax obligations they may face. By clarifying the terms and how they relate to each beneficiary’s specific entitlement, you’ll build trust with them and help prevent any disputes that may arise later in the process.

2. Understand everyone’s needs

Each beneficiary will have unique needs and circumstances that need to be considered when managing the distribution of assets. It’s good practice to take the time to understand these needs so that you can find creative solutions to ensure that assets are distributed fairly and equitably.

For example, if one beneficiary is in financial difficulty, you might consider making a discretionary distribution in a way that doesn’t impact other more financially secure beneficiaries. Similarly, you might need to find a compromise to best serve a beneficiary with a disability or health condition that requires ongoing care.

3. Maintain communication

Two of the root causes of beneficiary disputes are misunderstandings and poor communication. Clear and effective communication is crucial when balancing the different interests of multiple beneficiaries.

Once you’ve set expectations and clarified the terms of the trust, be prepared to communicate with beneficiaries regularly. Keep them informed of any progress and ask for their views when necessary. You should also be available to answer any queries or address any concerns promptly. This can help build trust and confidence in your trust management and reduce the risk of a dispute or a complaint.

4. Keep meticulous records

Maintaining detailed records is one of your primary obligations and essential in managing multiple beneficiaries. Keep accurate records of all financial transactions and decisions made during the administration, including any communications with the beneficiaries. This can help provide transparency and accountability and reassure beneficiaries that you’re applying the same decision process to everyone without favoring one beneficiary over the others.

5. Consult other professionals if necessary

Managing multiple beneficiaries can be complex. There may be times when you need to seek guidance from other professionals, such as financial advisers or accountants. If the trust’s assets include valuables such as jewelry, art, vintage cars, or real estate, engaging a specialist is good practice to ensure you value it accurately. Similarly, you might need the services of a tax or investment adviser to help you make the best decisions for every beneficiary.

6. Keep up with compliance

There are many reasons it pays to operate with compliance, not least because lawyers and trustees face a heavy penalty for not doing so. The regulations are designed to keep you on the straight and narrow regarding impartiality. By managing every beneficiary according to the rules, you’re more likely to treat them equally without playing favorites. And, importantly, you’ll have the records to back it up if you’re challenged in the future.

Keep Your Balance with Estateably

One of the best strategies for managing multiple beneficiaries effectively is building relationships with them and understanding their concerns. But compromise takes time. So how can you balance everyone’s interests properly when the administration of a trust requires so much routine, time-consuming paperwork?

Estateably is a cloud-based solution that helps trust and estate professionals streamline routine administration tasks. With modules covering workflow management, document management, accounting, and reporting, the easy-to-use platform takes care of the day-to-day business of trust management so that you can focus on honoring the trustor's wishes and serving the interests of beneficiaries.

Speak to our team or request a demo to see how Estateably can help you perfect the beneficiary balancing act.

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