What potential conflict arises when a fiduciary is also a beneficiary?

When a fiduciary is also a beneficiary, it creates a potential conflict of interest primarily because the fiduciary may face challenges in making impartial decisions that benefit all beneficiaries. The fiduciary is responsible for managing the assets or interests of the trust or estate with the best interests of all beneficiaries in mind, yet their own benefit as a beneficiary may cloud their judgment.

In this scenario, the fiduciary could prioritize their own interests over those of the other beneficiaries, leading to possible disputes. For instance, decisions regarding distributions, investments, or management of assets might be influenced by the fiduciary's desire to maximize personal gain rather than ensuring fairness across the board. This situation necessitates a clear understanding of fiduciary duties and could require greater scrutiny of the fiduciary’s actions to ensure that they are not acting out of self-interest at the expense of other beneficiaries.

The other choices do not effectively capture the core issue posed by the dual role of being both a fiduciary and a beneficiary, as they either address misunderstandings about roles or potential legal ramifications that do not stem from the inherent conflict present in prioritizing one's own benefit over that of others.