Trusts are put in place for the good of its beneficiaries – and a trustee is put in charge. The trustee is responsible for managing the trust’s assets and distributing funds according to the terms of the trust, even if they’re permitted to do so with a great deal of flexibility.
Unfortunately, not every trustee is actually trustworthy. Some of them take advantage of their positions to line their own pockets, putting their interests above their duties.
A trustee is obligated to put their own self-interest aside
Trustees are fiduciaries, which means they are required by law to act in the best interest of the trust and its beneficiaries, above all else – including their own best interests. Self-dealing involves any actions that benefit the trustee to the detriment of the trust or its beneficiaries. Self-dealing can look like:
- Claiming excessive compensation: Trustees are usually paid for their services. That’s only fair, given the job they have to do. However, a trustee who awards themselves outrageously large fees for their services can essentially “bleed” the trust dry.
- Conflicts of interest: Trustees often direct the trust’s investments. A trustee may violate their fiduciary duty by investing the trust’s money into companies where they have a stake – whether that’s a good investment or not.
- Using the trust as a piggy bank: It’s unacceptable for a trustee to make gifts to themselves out of a trust’s assets, sell property to the trust, buy property from a trust at below-market value or borrow money from a trust for their personal debts. All of these actions basically treat the trust as if it were the trustee’s own personal account.
If you suspect that a trustee is self-dealing, it’s important to assess your legal options quickly. Once the money is gone from a trust, it can be very hard to get back.