While creating or updating your estate plan you will likely need to appoint more than one person to a fiduciary position. A fiduciary position is a position of trust — and that trust can be broken. For example, a Trustee could break that trust be engaging in self-dealing. Knowing that, you should take as much time as is necessary contemplating your choice before deciding who the best person (or agency) is for the position. To help you understand the importance of choosing the right person for the job, a North Andover area estate planning attorney at DeBruyckere Law Offices explains fiduciary self-dealing.
What Is a Fiduciary and How Do They Fit into an Estate Plan?
In very broad terms, a fiduciary is a person (or agency) that is in a position of trust over someone else. Within your estate plan, there are frequently several fiduciary roles. The most common example of a fiduciary is the Trustee you must appoint when you create a trust. In addition, the person you name as the Executor of your estate as well as someone you name as an Agent under a Power of Attorney are also in fiduciary roles within your estate plan.
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 a North Andover Area Estate Planning Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions about fiduciary self-dealing, contact a North Andover area estate planning attorney at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
It may be tempting to appoint someone close to you as your Trustee; however, appointing a professional is often the better choice because it dramatically reduces the likelihood of mismanagement and increases the likelihood of successful administration of the trust.
Yes. If the Settlor does not include language allowing the beneficiaries to remove a Trustee, they can always petition a court for the Trustee’s removal for cause.
Choosing the right person for the job is the first step. Including remedies for your beneficiaries within the trust itself can also help. The most important thing you can do to prevent a wide variety of potential problems, however, is to consult with your estate planning attorney during the creation of the trust.