Appointing the right person to be the Trustee of a trust you establish is every bit as important as properly drafting the trust agreement. Because a Trustee holds a fiduciary position during the administration of the trust, the Trustee has a considerable amount of power and authority. If a Trustee violates his/her fiduciary duty it can cause the trust to fail. As the Los Angeles trust administration attorneys at Schomer Law Group, APC explain, self-dealing by a Trustee is one way that fiduciary duty can be violated.
The Fiduciary Duty of a Trustee
A fiduciary is a person (or agency) that is in a position of trust over someone else. You may have several fiduciary roles within your estate plan, the most common example of which is the Trustee of a trust who is responsible for administering the trust. The duty of loyalty to the beneficiaries of the trust is among the most fundamental of the duties a Trustee has while administering a trust. Although most Trustees perform their duties and responsibilities admirably, with care and commitment, there are Trustees who violate their fiduciary duty. One way a Trustee can violate that duty is by engaging in self-dealing.
What Is Self-Dealing by a Trustee?
The cornerstone of the fiduciary duty a Trustee has to the beneficiaries of the trust is to always put their best interests before his/her own. When a Trustee places his/her own interests over those of the beneficiaries, it may be referred to as “self-dealing.” Self-dealing effectively creates a conflict of interest which is something you don’t want to occur during the administration of a trust. Self-dealing can take the form of relatively subtle actions that benefit the Trustee to outright stealing from the trust assets by moving assets out of the trust and into the Trustee’s name. More often, however, self-dealing is more subtle. For example, a Trustee might move assets from one holding account to another until they eventually end up in an account owned by the Trustee or an account that benefits the Trustee. While it is possible that a Trustee could benefit while still placing the needs and interests of the beneficiaries of the trust first, anytime a Trustee profits from trust business (other than through the Trustee’s fee) it gives the appearance of self-dealing and, therefore, should be avoided.
A fiduciary may also be entitled to a fee for his/her services. Administering a trust can be a drain on the Trustee’s time which is why a fee is reasonable. An excessive fee, however, is not acceptable and could even rise to the level of self-dealing. For example, if a Trustee routinely bills a trust for hundreds of dollars when all the Trustee did that month was drive by the trust property to make sure everything appeared to be in order. Another example involves a Trustee using trust assets to purchase things that have nothing to do with the business of the trust but that benefit the Trustee.
If a Trustee does engage in self-dealing, a beneficiary (or other injured parties) has legal remedies available; however, avoiding self-dealing in the first place is always best. While there is no way to guarantee that a Trustee won’t engage in self-dealing, taking the time necessary to really think about who to appoint as your Trustee can dramatically decrease the likelihood of self-dealing. It is also best to discuss your choice of Trustee with your trust attorney before finalizing your decision.
Contact Los Angeles Trust Administration Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about Trustee self-dealing during the administration of a trust, contact the experienced Los Angeles trust administration attorneys at Schomer Law Group APC by calling (310) 337-7696 to schedule an appointment.