What Can We Do About Self-Dealing Trustee?

 In Probate, Revocable Trusts, Trustee

Question:

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?

Response:

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 trusts and estates lawyer to determine your rights and how to proceed.

Showing 2 comments
  • Linda Charles-Crain
    Reply

    Parents left an irrevocable living trust to my brother and I. The designated trustee passed shortly after the last living parent. Last parent has been deceased since 2009. Since then the estate has gone through probate and my my brother appointed trustee. The property in question is investment property. I’ve requested my portion of the inheritance for years now. However my brother (trustee) refuses to sell the property and distribute the funds equally. Insist he wants to buy the property but cannot come up with the funds to buy me out. Additionally, he has rented to his son for years, charging a lesser rent than market value which has caused lesser payment to me for monthly rent. Further, he provides no receipts for rent received from tenants, no application information showing actual rent charged. I want my portion of inheritance but he refuses and intimidates me when questioned. I have kept text conversations reflecting such refusals. I have no knowledge what monies he is withdrawing from our liquid trust account and he refuses to provide information. What are my options in this matter.

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    • Harry Margolis
      Reply

      Dear Ms. Charles-Crain,
      Based on what you say, it appears that your brother is not fulfilling his fiduciary duty as trustee. You should be able to have him removed in a court proceeding. However, going to court can be very expensive and add to family conflict. I’d recommend starting by engaging an attorney to contact your brother and explain the problems with his approach to his trusteeship. The attorney could say that you don’t want to go to court, but that if you did you would likely be successful and that your brother in fact might be held liable at least for the lost rent not paid by his son. The hope would be to reach an amicable settlement without recourse to the courts. But if this doesn’t work, you should be ready to go to court to seek what’s rightfully yours.
      One caveat on all the above: I haven’t seen the trust. A lawyer would start by reading the trust and advising you of your rights under its terms.

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