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Self-Dealing by Trustees

New York City Lawyer Handling Estate Litigation

Trusts are an important component of an estate plan because they offer flexibility and the potential to minimize estate taxes. When the grantor creates a trust, he or she appoints a trustee to manage the trust assets on behalf of beneficiaries. The trustee is a fiduciary who owes substantial duties to the trust’s beneficiaries, including the duty of loyalty. The trustee needs to administer the trust only in the interests of the beneficiaries. Trustees can’t place their interests above the beneficiaries’ or engage in any competition with the property that’s part of the trust. If you are concerned about self-dealing by trustees, you should consult with New York City estate litigation attorney Jules Haas. He represents both beneficiaries and trustees in estate litigation.

Duties of a Trustee

A trust is a legal arrangement whereby a grantor transfers property to the trust. The trustee must manage the trust property on behalf of one or more beneficiaries according to the terms of the trust instrument. Trustees have a complicated and challenging fiduciary role. In some cases, the trust must be managed on behalf of multiple beneficiaries who may have competing interests. As a fiduciary, a trustee is held to the highest standard of conduct.

Fiduciary duties owed by trustees in New York City include duties of loyalty, care, impartiality, prudent investment, and accounting. Trustees owe an absolute duty of undivided and complete loyalty to those whose interests the trustee is supposed to protect. Trustees are required to administer the trust solely in the beneficiaries’ interests; they need to put the interests of the beneficiaries ahead of their own interests, and the interests of other parties. Trustees are also supposed to avoid conflicts of interests or transactions that would benefit them, whether directly or indirectly. Before agreeing to serve as a trustee, you may want to speak with a lawyer so that you fully understand the responsibilities and duties associated with that position.

Self-Dealing by Trustees

Self-dealing can occur in different ways. For instance, a trustee may engage in self-dealing if the trustee is an officer or director of a business in which the trust assets are invested. Similarly allegations of self-dealing could arise in connection with transactions between the trustee’s family members and the trust. Self-dealing could also occur if the trust purchases or sells property in which a trustee has an interest.

Certain conflicts may be waived by an express provision in a trust instrument or with the settlor or beneficiaries’ consent. For instance, investing in the stock of a corporate fiduciary is usually impermissible self-dealing unless the trust contains terms that expressly permits it.

Litigation

Self-dealing is strictly prohibited in New York. When a trustee engages in self-dealing or breaches fiduciary duties in another way, the result may be litigation. Generally, a trustee who has engaged in self-dealing can’t overcome a breach of the duty of loyalty even when he or she has acted in good faith. The courts apply a “no further inquiry” rule when a transaction involves a conflict of interest; it applies whenever the trustee’s personal interests are substantially affected.

Under the no further inquiry rule, a trustee (or other fiduciary) can’t profit from self-dealing entered into without the court’s or the trust beneficiaries’ prior approval or consent. When this rule applies, the court will not look at whether a particular contract or transaction was fair or not. It doesn’t matter whether the terms or compensation were reasonable. Rather, the court will stop examining the situation once a relationship is disclosed and set the transaction aside or refuse to enforce it at the request of a party the fiduciary was supposed to represent.

Beneficiaries can void transactions regardless of whether terms were reasonable or in the beneficiaries’ best interests. Trustees are liable per se if a beneficiary can show that they had a personal interest in the transaction.

Personal Interests

In addition to avoiding obvious self-dealing, trustees should avoid entering into situations where their personal interests collide with beneficiaries’ interests. Indirect self-dealing can be subtler and it may be more difficult for a fiduciary to stay cognizant of it. Trustees are supposed to take steps to avoid self-dealing by identifying whether a conflict of interest exists in every transaction and if so, seek out alternatives. If no reasonable alternatives exist, the trustee is supposed to obtain consent from all the parties or the court.

Hire a Seasoned New York City Attorney

Trustees are fiduciaries. They have serious responsibilities and are not allowed to use their role to benefit themselves. Whether you’re worried about self-dealing by trustees or you are a trustee against whom accusations have been made, you should talk to lawyer Jules Haas. Mr. Haas has represented both trustees and beneficiaries in these types of claims for more than thirty years. He represents people in Manhattan, Queens, and the Bronx, along with Suffolk, Nassau, Westchester, Kings, and Richmond Counties. Contact us at (212) 355-2575 or complete our online form.

Client Reviews
★★★★★
I am very grateful to Mr. Jules Martin Haas attorney of law in New York. I am from Buenos Aires Argentina. He managed with expertise a very difficult situation. of a complicate heritage from my aunt Anna Grodzka that lived and died a very long time ago in New York. I recommend him not only for his extraordinary knowledge but also for his kindness. Irma CW Peusner
★★★★★
I found Mr. Haas after being misguided by a former attorney. Mr. Jules Haas took our case which involved an estate/trust dispute. What initially seemed like an impossible and overwhelming legal fight was now in the hands of someone who had the integrity and legal expertise to win our case. Mr Haas' attention to detail and his expert knowledge base, skillfully and successfully guided us through an intricate legal process. I am very thankful and grateful to Mr. Jules Haas for representing our interest and ultimately winning. Bringing about a peace of mind we needed. Thank You Devida Nedd
★★★★★
I was in need of a guardianship attorney and I hired the services of Jules M. Haas' Law firm. The service of counselor Haas and his staff, was very profesional and the case was handled in a timely matter. I would strongly recommend his services Angel Guevara
★★★★★
I strongly recommend Jules Haas. I have worked with him for two years and he has provided so much support and followed through with everything he promised he would do. His support staff is just as helpful! We had an interesting case and he helped to solve each part of it legally and was very thorough. Thank you for everything you have done to finalize our families estate Robyn Stafford
★★★★★
Jules Haas helped me with managing the process in probate court for my father's estate through to its completion upon the sale of my father's house. He was knowledgeable, efficient, and effective in submitting documentation to the probate court, explaining procedures to me, and advising me as to the progress of my case. His support staff was also very helpful. He made what for me created so much anxiety into something manageable where I could see progress every step of the way. His fees were very reasonable. I am super grateful to him for all the help he has provided and strongly recommend his services. Diana Janer
★★★★★
I just completed an estate transaction where Jules Haas represented my client in an estate and he did a great job! He was very quick at responding to all matters throughout the sale process, he was detailed, he was knowledgeable and he was a pleasure to work with. I just recommended him to some new clients who are going through an estate matter and will continue to recommend him. Rodolfo Lucchese