The short answer is emphatically, yes, a properly drafted trust should, and legally *must*, bar trustees from engaging in self-dealing, but the reality of enforcement can be complex. Self-dealing occurs when a trustee uses their position for personal gain, to the detriment of the trust beneficiaries, and it’s a fundamental breach of the fiduciary duty owed to those beneficiaries. The core principle behind a trust is that assets are held for the benefit of others, not the trustee, and any action that compromises that is a serious violation. California Probate Code sections 16002 and following outline these duties and prohibitions, with penalties ranging from surcharges to removal of the trustee, and even legal action for damages. A well-crafted trust document with a robust “no self-dealing” clause is the first line of defense, however, vigilant beneficiaries and a proactive approach to oversight are also crucial.
What happens if a trustee benefits personally from the trust?
When a trustee improperly benefits from trust assets, it creates a conflict of interest and exposes them to legal liability. For instance, if a trustee sells property owned by the trust to themselves at below-market value, or uses trust funds to renovate their own home, that’s clear self-dealing. According to a recent study by the American College of Trust and Estate Counsel (ACTEC), approximately 30% of trust disputes involve allegations of trustee misconduct, with self-dealing being one of the most common claims. Beyond the monetary loss to the beneficiaries, such actions erode trust and can lead to prolonged and costly litigation. The trustee may be held personally liable for any profits they made, plus interest, and may also be required to reimburse the trust for any losses incurred.
How can I prevent a trustee from self-dealing?
Prevention is always better than cure, and several strategies can minimize the risk of self-dealing. First, choose a trustee who is trustworthy, impartial, and has a strong understanding of their fiduciary duties. Steve Bliss, as an estate planning attorney, often recommends co-trustees, particularly in complex situations, to provide a system of checks and balances. Secondly, the trust document itself should include clear and unambiguous language prohibiting self-dealing and outlining the consequences. A “spendthrift clause” can also help protect beneficiaries from mismanagement. It is also recommended that a yearly accounting be preformed, so that the beneficiaries can review and inspect the transactions. According to the California Courts, more than 60% of trust litigation originates from a lack of transparency and poor record-keeping.
I’ve heard stories about trustees taking advantage of families, is this common?
Unfortunately, yes, stories of trustee misconduct are not uncommon, and often stem from a breakdown in oversight or a trustee acting on temptation. I remember Mrs. Henderson, a lovely woman who came to Steve Bliss after her father passed away. Her father’s trust appointed her brother, Mark, as trustee, and initially, things seemed fine. However, she soon discovered that Mark had been “borrowing” funds from the trust for personal expenses, disguised as “administrative fees,” and had also invested a significant portion of the trust assets in a risky business venture he owned. She felt completely helpless and betrayed, unsure where to turn. The lack of regular accountings and her brother’s initial charm had blinded her to the problem. She eventually hired a probate attorney to sue her brother, and was able to recover the funds. This case highlights the importance of active oversight and due diligence when selecting a trustee.
What happens when a trustee *does* correct a mistake related to self-dealing?
While self-dealing is a serious offense, it’s important to remember that mistakes can happen, and a trustee who *immediately* recognizes and rectifies an error can mitigate the damage. Mr. Davis was appointed trustee for his mother’s special needs trust, and inadvertently used trust funds to pay for a non-approved expense. Realizing his mistake, he immediately contacted Steve Bliss, who advised him to amend the trust to allow the expense, or reimburse the trust from his personal funds. Mr. Davis quickly paid back the funds and documented the correction. Because of his transparency and swift action, his beneficiaries didn’t pursue legal action, and his reputation remained intact. This is a prime example of how honesty and proactivity can turn a potential disaster into a manageable situation. It demonstrates that while trust documents must protect beneficiaries, they also allow for responsible correction of errors. A properly drafted trust also allows for the removal of a trustee who consistently disregards their fiduciary duty.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
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Map To Steve Bliss Law in Temecula:
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
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Feel free to ask Attorney Steve Bliss about: “What should I know about jointly owned property and estate planning?” Or “Is probate public or private?” or “What is a living trust and how does it work? and even: “What is bankruptcy and how does it work?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.