In its simplest terms, “self-dealing” is defined as any action or series of actions where a trustee (the individual or firm appointed to administer the property and assets within a trust) uses his or her position to serve themselves above the best interests of the trust’s beneficiaries.
While there are some obvious examples of self-dealing such as moving assets within the trust into his or her own name or even stealing said assets, many cases involve trustees who have carefully crafted a way to benefit from the trust in less obvious ways.
If you are suspicious about a trustee, here are a few things you should consider.
Risky Investments
One of the primary roles of a trustee is managing the trust’s funds on behalf of the trust’s beneficiaries. To do this well, the trustee should be making sensible investments with the trust’s assets, avoiding unnecessarily high risks.
For example, say a trustee decides to use some of the funds from the trust to invest in their friend’s new start-up, or worse, their own company. This is a clear conflict of interest that is prohibited in most instances. But self-dealing can also manifest in more subtle ways. For example, a trustee who, either in his own name or in the name of a shell company, purchases property from the trust.
Excessively High Fees
Of course, brokers and investment advisors charge for their expertise; beneficiaries should pay close attention to the amount agents for the trust charge compared to other advisors. If these amounts seem suspiciously high, it’s possible that the trustee is receiving kickbacks or other benefits from a broker who is “churning.” “Churning” is where a broker executes excessive trades for an investment account in order to generate more commission from the account. Obviously, a trustee who participates in such a scheme is clearly in breach of his fiduciary duties. In such a case, legal action can be taken against both the trustee and the advisor if that is the case.
Self-Distributions
In some cases, a trustee is also a beneficiary of the trust. Trustees in this position are prohibited from suing their position as trustees to benefit themselves at the expense of other beneficiaries.
Although state laws usually prohibit a trustee/beneficiary from advancing his own interests at the expense of other beneficiaries, the settlor can take additional action to ensure this does not happen. For example, the settlor can include a term in the trust prohibiting the trustee from making discretionary distributions to himself. Or the trustee may be permitted to distribute assets to himself only when he also makes equal distributions to the other named beneficiaries.
Is Your Trustee Self-Dealing?
It can be difficult to identify self-dealing without keeping a close eye on all of the trustee’s decisions. While the trustee is required to give beneficiaries full disclosure of his or her actions pertaining to the management of the trust and its assets, self-dealing behavior may not be apparent to untrained eyes.
If you believe you have been the victim of self-dealing by a Trustee, you should take action quickly. Contact our firm today for a consultation.
Gaslowitz Frankel LLC is the Southeast’s premier fiduciary litigation law firm. Our legal team specializes in all aspects of fiduciary disputes representing individuals, executors, trustees, investors, shareholders, and corporate fiduciaries in complex fiduciary disputes involving wills, estates, trusts, guardianships, businesses, and securities law.
