If you are a Trustee, you have many duties. One of them is not to act as Trustee of two adverse Trusts at the same time. What are adverse Trusts?
For example, if two Trusts are fighting over the same piece of real property, then they would have adverse interests. If the Trustees of these two Trusts are the same person, then that’s a problem. Obviously a Trustee has a duty to represent and fight for the interests of his Trust. But the Trustee cannot do that when he is on both sides of a contested issue.
This is much the same as lawyer’s ethical duties that require a lawyer not to represent two adverse parties in a lawsuit. That makes sense because you cannot fight hard for one party if you also represent the opposing party.
This may seem like an obvious point. And it may seem like an issue that rarely occurs. It is obvious, but not so rare. There are many times in Trust administrations where a single Trust breaks into several smaller sub-Trusts after one spouse dies. One sub-Trust may benefit one set of children and another sub-Trust benefits a different set of children. If a dispute occurs between the two sub-Trusts as to the assets that belong to each, then the Trustee cannot represent both Trusts at the same time.
While this does occur more often than you may think, the duty to avoid adverse trusts is rarely cited as a violation in those cases. Why not? It simply does not come to mind that often. In most cases, the parties are so busy fighting over the underlying dispute, that they forget this basic rule for Trustees. Yet, it can be a powerful weapon to remove the Trustee and allow separate Trustees to take over.
So the next time you have a dispute between two Trusts, but only have one Trustee, you may want to consider this little-used Trust duty.
