Given the flexible nature of a trust, and the numerous and varied goals a trust can help you achieve, it should come as no surprise that trusts are frequently used in an estate plan. If you decide to incorporate a trust into your estate plan, you will need to appoint someone to be the Trustee of the trust. Your choice of Trustee is extremely important because your Trustee will be in a fiduciary role. There are several ways a Trustee can violate the duties that come with that fiduciary role. The Harrison trust attorneys at the Law Offices of Kobrick & Moccia explain Trustee self-dealing which is one way a Trustee could violate his/her fiduciary duty.
Understanding a Trustee’s Fiduciary Duty
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 you must appoint when you create a trust. The duty of loyalty to the beneficiaries of the trust is among the most fundamental of the duties a Trustee has during the administration of a trust. Although most Trustees perform their duties and responsibilities admirably, with care and commitment, there are Trustees who violate the duty they have to the beneficiaries of the trust. Engaging in self-dealing is one way a Trustee might violate the fiduciary duty that comes with being a Trustee.
Trustee self-dealing occurs when the Trustee places his/her own interests over those of the beneficiaries. 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 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. 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 for him/her that have nothing really to do with trust business.
All of these examples should help you to understand the concept of self-dealing by a fiduciary. If a fiduciary does engage in self-dealing, the beneficiary or injured party has legal remedies available; however, avoiding self-dealing in the first place is always best. While there is no way to guarantee that a fiduciary won’t engage in self-dealing, by taking the time necessary to really think about who to appoint to a fiduciary position within your estate plan you can dramatically decrease the likelihood of self-dealing.
Contact Harrison Trust Attorneys
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns about choosing a Trustee or about a Trustee’s fiduciary duty, contact the Harrison trust attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.