The definition of trustee self-dealing might seem pretty straightforward: using the assets of a trust for one’s own benefit. Despite this relatively common-sense definition, self-dealing can be hard to identify in practice. That is one reason it is important to consult an attorney if you believe you have such a case.
What does self-dealing look like in reality? It is not always someone taking assets out of the trust bank account and spending them on themselves. There are many situations that classify as self-dealing that don’t necessarily fall in line with this mental image.
Below are four examples of trustee self-dealing:
Questionable investments and asset management
A trustee is meant to manage a trust’s funds for the sole benefit of the trust beneficiaries. That means making prudent investments and distribution decisions, not taking unnecessary risks with trust assets, and avoiding even the appearance of a conflict of interest.
Trustees who loan trust assets to friends or invest trust assets in businesses owned by the trustee are obviously violating the rule against self-dealing. that the trustee However, self-dealing can also manifest in more subtle ways. For example, if a trustee’s investment portfolio is similar to that of the trust and many of the investments are not publicly traded and/or consist of high-risk or venture capital investments, the trustee may be investing inappropriately.
Undue agent compensation
If the trust is incurring excessively high fees for a broker or investment advisor, he might be receiving favors or kickbacks in return. Though agents do charge for their time and expertise, payments that seem excessive compared to the fees charged by other investment advisors should be viewed with suspicion. It may be that the trustee and broker are engaged in a practice called “churning,” in which investments are bought and sold with excessive frequency for the purpose of generating fees. Churning is a breach of the fiduciary duties of both the trustee and the advisor.
Gifting to, or unfairly compensating, oneself
Trustees who are also trust beneficiaries have must avoid using their position to benefit themselves over the other beneficiaries. Many trusts prohibit a trustee/beneficiary from using that authority to make discretionary distributions to herself. Where that is not the case, a careful trustee will make distributions to herself only when she also makes equal distributions to the other trust beneficiaries.
Self-dealing also occurs when a trustees enters into a contract with the trust. For example, a trustee is prohibited from buying a house that belongs to the trust because doing so would make the trustee both the buyer and the seller of the house. Those situations are ripe for abuse because the trustee cannot serve both the best interest of the trust, getting the maximum value for the house, and his own best interest, paying less than fair market value.
Even if it appears that the house is being sold at a fair price, the circumstances could still involve self-dealing, especially if the beneficiaries do no consent to the sale after full disclosure of the terms.
Bringing your case to a trust dispute attorney
The crux of a trust dispute over self-dealing is identifying whether the behavior was indeed self-dealing.. Trust beneficiaries are not required to verify their suspicions on their own. The trustee has a duty to give trust beneficiaries full and complete information regarding their actions with trust assets.
We understand the personal tension and legal complexities that accompany trust disputes. If you believe you have been the victim of self-dealing by a trustee, it is important that you take action quickly to protect your rights. By hiring an attorney who is an experienced fiduciary litigator, you can take comfort in knowing that your case is being handled properly.
Contact us today to find out how Gaslowitz Frankel is able to help you with your trust dispute.
