What Can We Do About Self-Dealing Trustee?
My grandmother left a trust and will when she passed. My father is in charge of the trust finances and real estate. The will states that he cannot sell the property in the trust, but he can rent it out until he passes. The house is free and clear of any loans or liens. I have two questions: First question: On the money in the trust account, we were supposed to get our disbursement in April 2018. My father is holding onto the money and is also taking money from it for personal items such as car repairs, rental property repairs, etc. and states that he will pay us eventually. Can we demand that he distribute the money to the beneficiaries? Is he allowed to pay for personal expenses from it or move the money to his own savings account? Second question: Both he and my uncle are trustees of the trust and there are six total beneficiaries. Can my father take a loan out on the property in the trust without us knowing?
The overall answer to your questions is that it depends on what the trust says. But we can answer your questions in a general way, based on the general rules of trusts.
First, if the liquid funds in the trust were supposed to be distributed under the trust terms, then it’s a violation not to do so. It would be fine to keep some funds in a working account to support the upkeep of the house, but not the bulk of the funds. They cannot be used for your father’s personal use unless the trust gives him that benefit. If not, his doing so sounds like self-dealing and may well be grounds for his removal as trustee.
Second, if the trust permits making loans, your father may be able to loan himself money. However, he has a fiduciary duty not to do so to the detriment of the other beneficiaries. If you are asking whether he can take a mortgage out on the property in the trust and then use the funds for his own benefit, it’s likely that that would violate the terms of the trust and again be grounds for his removal as trustee. He would also be liable to return the funds, as might your uncle for facilitating the transaction and for not taking due care as trustee.
Given what you describe and that the answers to your questions depend on the exact terms of the trust, I recommend that you bring the trust to a local trust and estates lawyer to determine your rights and how to proceed.