Avoiding Trustee Self-Dealing

Trustee accept certain fiduciary duties when they agree to take on the role.  Their ignorance of these specific duties can sometimes be the source of disputes and litigation with the Trust beneficiaries.  Perhaps the most common dispute arises because of accusations of Trustee self-dealing.  

Duties of the Trustee

If you are a Trustee, you cannot benefit or profit (either directly or indirectly) from your use or control of Trust property.   Some exceptions apply.  For example, if the transaction in question was approved by the beneficiaries, the court, or the Trust document itself, then even if the Trustee receives some monetary gain, it would not be considered a breach of fiduciary responsibilities.

Commonly, a Trustee may find themselves in the difficult position of being both a Trustee and a beneficiary.  In some cases, the Trustee/beneficiary may find his or her interests or goals with (respect to the Trust assets) are not perfectly aligned with the other beneficiaries.  As the Trust’s fiduciary, he/she is obligated to place the interests of beneficiaries above his or her personal interests.  This creates a balancing act that is not always successful. 

Examples of Self-Dealing

By way of illustration, a Trustee selling trust assets to him or herself, in an effort to quickly liquidate the estate property and make distributions to the beneficiaries, may be grounds for a claim of self-dealing. Unless some exception applies, the sale of Trust assets must be an “arms-length” transaction. If you are a Trustee seeking to purchase Trust property, give the beneficiaries notice in advance and see if you can get their explicit, written agreement to the terms in advance of the sale. 

More egregious examples are common.

>> Trustees making gifts or loans to themselves without prior approval  

>> Trustees making risky investments with Trust assets that benefit themselves

>> Trustees Overcompensating themselves for Trustee services 

Perhaps the best advice to give a Trustee when it comes to avoiding accusations of self-dealing — and for the administration of the Trust in general — is to keep your beneficiaries well informed.  While it adds to your workload, open lines of communication are an important step in reducing potential conflict. 

Understand Your Duties

As a Trustee, you have likely been afforded broad discretion in managing trust assets.  Yet, instances of Trustee self-dealing are surprisingly common, and almost certainly underreported. Understand your legal duties to the Trust before you begin administration.  As a Trustee, mistakes can happen; unnecessary fighting not only depletes remaining assets, but you could be held liable for not just reimbursing the Trust, but for the legal costs incurred by the beneficiaries if they are successful in litigation. 

Takeaway

If you are a beneficiary, and suspect a Trustee has acted imprudently, involve an experienced probate attorney to attempt a quick resolution. Knowing your rights and attempting to resolve disputes quickly can be in your best interests. Even if successful, Trust litigation can tie up distribution to you for many years.

Whether you are a beneficiary who suspects self-dealing, or you’re a Trustee accused of self-dealing, it is in your best interest to act quickly.   Contact CASHMAN LAW today for a free consultation to see how we might help you understand your rights and options. 

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