If you choose to include a trust in your estate plan, one of the most important steps in the trust creation process is deciding who to appoint as the Trustee of your trust. Appointing the right person is crucial to the overall success of the trust. A Trustee holds a fiduciary position during the administration of the trust, meaning the Trustee has considerable power over the trust assets. A violation of the Trustee’s fiduciary duty can be catastrophic for the value of the trust and for the beneficiaries of the trust. The Coral Gables trust attorneys at Stivers Law explain what it means if a Trustee violates the fiduciary duty by engaging in “self-dealing.”
What Is a Trustee’s Fiduciary Duty?
The duty of loyalty a Trustee has to the beneficiaries of a trust is among the most fundamental of the duties a Trustee has during the administration of a trust. Most of the time a Trustee performs the duties and responsibilities associated with the administration of the trust conscientiously and with great care; however, there are times when a Trustee does not perform his/her duties quite so admirably. Self-dealing by a Trustee is one way that a Trustee can violate the fiduciary duty the Trustee has to the trust and to the trust beneficiaries.
What Is Self-Dealing?
In simple terms, self-dealing by a Trustee occurs when the Trustee places his/her own interests over those of the beneficiaries. When a Trustee places his/her own interests ahead of those of the trust beneficiaries, it creates a conflict of interest. That conflict of interest can be devastating to the administration of the trust.
Self-dealing can take several forms from outright stealing to much more subtle actions that amount to self-dealing. A Trustee could simply move assets out of the trust and into his/her 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.
Another example of a fiduciary within your estate plan is the Agent you appoint when you execute a Power of Attorney. That Agent might engage in self-dealing if he/she uses the authority granted by the POA to gift himself/herself property owned by the Principal or to purchase assets owned by the Principal or less than fair market value.
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 for him/her that have nothing really to do with trust business.
These are just a few examples of self-dealing by a Trustee. A beneficiary who has been injured (financially) as a result of self-dealing by a Trustee does have legal remedies available; however, it is always best to try and prevent the harm in the first place. One way to do that is to consult with your estate planning attorney regarding your choice of Trustee when you create a trust. Instead of simply appointing someone close to you, take the time to honestly evaluate a candidate’s suitability for the position.
Contact Coral Gables Trust Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about what happens if a Trustee engages in self-dealing, contact the experienced Coral Gables trust attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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