Can a Trustee Be a Beneficiary in Michigan?

Trust law in Michigan can feel like a complex puzzle with many moving pieces, especially when one person wears more than one hat..

At Bassett Murray Law Group, PLLC, we have spent 30-plus years guiding families through that puzzle, building plans that match their real-life goals.

This article takes a look at whether an individual can hold both the titles of trustee and beneficiary in Michigan and what this choice might mean for all parties involved.

The material below is general information, not legal counsel, and you should talk with a qualified attorney about your own circumstances.

The Dual Role: Trustee and Beneficiary Defined

A trust is a legal arrangement in which one party, the trustee, manages assets for the benefit of one or more beneficiaries.

The trustee must follow the written terms of the trust and act in the beneficiaries’ best interests, a duty spelled out in Michigan Compiled Laws (MCL) 700.7801.

A beneficiary is the person or entity entitled to receive benefits from the trust as stated in MCL 700.7103.

Michigan rules allow the same individual to carry both labels, so long as that person respects all fiduciary duties.

Permissibility and Considerations Under Michigan Law

The Michigan Trust Code, found in Chapters 700–740 of the MCL, is the backbone of trust rules across the state.

Under this code, a beneficiary may serve as trustee; however, MCL 700.7802 stresses impartiality and loyalty.

Because personal benefit could compete with duties owed to others, the original trust language must be drafted with care to address potential conflicts from the outset.

Potential Conflicts of Interest and Fiduciary Duties

When a trustee stands to gain personally, the temptation to favor oneself can grow, even if only by accident. Michigan law answers that risk by imposing several strict fiduciary duties.

Duty of Loyalty

Trustees have an unwavering duty of loyalty. Every decision, such as selling trust property or selecting investments, must serve the beneficiaries’ interests alone. If a trustee profits personally, for example by buying trust assets below market value or diverting income to themselves, that transaction is voidable unless the trust explicitly authorizes it.

Beneficiaries may demand that the trustee return any ill-gotten gains, pay interest on those gains, and cover the costs of pursuing that relief. By making self-dealing so risky, Michigan law ensures trustees remain dedicated solely to the trust’s interests.

Duty of Impartiality

When a trust has multiple beneficiaries, such as income recipients and remainder holders, the trustee must act impartially. They must balance a spouse’s annual income with children’s future inheritance.

They cannot favor one party by draining earnings or hoarding assets. Instead, trustees divide income and, when needed, principal to honor each beneficiary’s interest. This duty of impartiality prevents favoritism and maintains harmony.

Duty of Prudence

Trustees must manage trust assets with the same care, skill, and caution that a prudent person would use for their own investments. They weigh the trust’s goals, beneficiaries’ needs, tax, and diversification. An educational fund may emphasize growth stocks, while funds for imminent tuition favor liquidity. Regular reviews, rebalancing, and records aligning decisions with the trust’s purpose fulfill this prudence duty.

Duty to Inform and Report

Transparency supports every duty. Trustees must keep beneficiaries informed with an initial statement upon accepting the role and provide regular reports of receipts, disbursements, and valuations. When asked, trustees provide trust documents, tax returns, and other relevant records. Beyond compliance, clear communication, such as written explanations of major actions, annual summaries in plain language, and opportunities to ask questions, prevents suspicion and dispute.

Safeguards and Best Practices

Families can build extra layers of protection into the trust document so that duties stay on track. A few popular tools include:

• Co-Trustees: Appoint an independent co-trustee who offers a second set of eyes on every major decision.
• Trust Protector: Name a trusted third party who can remove or replace a trustee if problems surface.
• Detailed Trust Terms: Spell out distribution rules, investment limits, and decision-making steps so surprise disputes have less room to grow.

Along with careful drafting, a trustee-beneficiary should keep clear records of all transactions and seek legal guidance before making moves that might be viewed as self-dealing.

Breach of Fiduciary Duty and Legal Recourse

A breach of fiduciary duty occurs when a trustee violates one of the duties listed in MCL 700.7901(1).

If beneficiaries suspect a breach, Michigan courts can step in with several remedies:

1. Removal of Trustee: A judge may remove and replace a trustee whose actions harm the trust.
2. Damages: The trustee can be ordered to reimburse losses or return profits made from improper conduct.
3. Other Equitable Relief: Courts may freeze assets, compel an accounting, or issue instructions designed to protect beneficiaries.

Quick action is vital; waiting too long may limit available remedies or make recovery more difficult.

Need Advice on Trust Administration? Contact Bassett Murray Law Group, PLLC Today

For more than three decades, Bassett Murray Law Group, PLLC, has been invested in improving lives, providing Michigan families with estate plans aimed at long-term peace of mind.

If you are serving as a trustee, thinking about naming one, or worried about possible conflicts, feel free to discuss your concerns with an attorney who handles these matters daily.

Call us at 734-930-9200 in Ann Arbor or 231-427-2292 for our Petoskey office, or visit our contact page to set up a consultation. We look forward to helping you build or administer a trust arrangement that protects loved ones and respects Michigan law.