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Thread: can a trustee buy property from the trust?

  1. #1
    Junior Member
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    Nov 2005
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    Default can a trustee buy property from the trust?

    There's a house here, whose owner was convicted of doing some pretty
    horrid things. His assets have been given to a trust, which is
    supposed to benefit his victims. Now, his house has been sold, and
    one of the buyers is a lawyer, described as a trustee of the trust
    which controls the assets.

    Story at
    http://www.syracuse.com/news/poststa...940.xml&coll=1

    I'm surprised that he can do that. It seems like a conflict of
    interest. (I have absolutely no involvement in this, nor any desire
    for any. I'm just curious.)

    Thanks,
    George


  2. #2
    Senior Member
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    Default can a trustee buy property from the trust?

    On Sat, 26 Nov 2005 16:07:52 -0500, George
    <_g_bnotreallymyaddresseccles@verizon.net> wrote:
    ...His assets have been given to a trust, which issupposed to benefit his victims. Now, his house has been sold, andone of the buyers is a lawyer, described as a trustee of the trustwhich controls the assets.Story athttp://www.syracuse.com/news/poststa...940.xml&coll=1I'm surprised that he can do that. It seems like a conflict ofinterest....
    I'm rusty in this area and don't have access to professional reference
    materials right now, but I'm going to take it on because no one else
    seems to be doing so.

    In this case a man was convicted of kidnapping and abusing several
    young women. There apparently was a civil suit as well as a criminal
    prosecution, and the abuser's property was placed in a trust for the
    benefit of his victims. The newspaper article reports that the trust
    sold the abuser's home to two purchasers. One was the attorney or
    former attorney of a victim, and was also one of the trust's two
    trustees. The other was the same victim's brother, who reportedly
    wanted to buy house "to give the victims some closure."

    For a trustee to purchase property from the trust is a textbook
    example of self-dealing, which is one type of breach of fiduciary duty
    (the duty to conduct the trust's affairs solely for the benefit of the
    trust). A self-dealing transaction generally can be set aside if a
    beneficiary complains, without need for proof that the transaction was
    unfair.

    The fact that the attorney's partner in purchasing the property was a
    brother of the attorney's client poses additional problems. It's not
    exactly the same thing as entering into a business transaction with a
    client, but it's uncomfortably close. Attorneys' rules of
    professional conduct typically forbid that unless the existence of a
    conflict of interest is disclosed to the client. It also suggests an
    arrangement that is uncomfortably close to an attorney providing
    financial assistance to a client, which the rules of professional
    conduct also typically forbid, with no exception for disclosure.

    It's impossible to make a positive judgment on this situation because
    all we know about the case is what the newspaper disclosed. If we
    knew all of the relevant facts they might present a clear conflict of
    interest, or some unexpected detail might make the whole thing look
    relatively innocent.

    Judging only from what the newspaper says, though, the attorney's
    behavior appears to be a breach of fiduciary duty to the trust. At
    the very least it creates an appearance of wrongdoing that would
    better have been avoided. I would never, ever seriously consider
    doing what that attorney did, even if I were convinced that it was
    legal.

    Here's an article that discusses these aspects are fiduciary duty in
    more detail:
    http://www.syracuse.com/news/poststa...l=1&thispage=2


    My email address is LLM041103 at earthlink dot net.


  3. #3
    Member
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    Default can a trustee buy property from the trust?

    on 12/5/2005 7:59 PM Jonathan Sachs said the following:
    On Sat, 26 Nov 2005 16:07:52 -0500, George <_g_bnotreallymyaddresseccles@verizon.net> wrote:
    ...His assets have been given to a trust, which issupposed to benefit his victims. Now, his house has been sold, andone of the buyers is a lawyer, described as a trustee of the trustwhich controls the assets.Story athttp://www.syracuse.com/news/poststa...940.xml&coll=1I'm surprised that he can do that. It seems like a conflict ofinterest....
    <DETAILS OF THE SELF DEALING SNIPPED>

    It's impossible to make a positive judgment on this situation because all we know about the case is what the newspaper disclosed. If we knew all of the relevant facts they might present a clear conflict of interest, or some unexpected detail might make the whole thing look relatively innocent.
    True, especially the part about not enough facts. For example, I am
    aware of other fiduciaries (not trustees, but P.R. of estate) buying
    estate property. When I have advised a P.R. in those cases, I have
    explained that either they needed agreement of all potentially affected
    beneficiaries, and / or the sale must be objectively reasonable and
    approval of the probate court. This last is not necessarily available
    in the Trust setting, but a very good idea if available.
    Judging only from what the newspaper says, though, the attorney's behavior appears to be a breach of fiduciary duty to the trust. At the very least it creates an appearance of wrongdoing that would better have been avoided. I would never, ever seriously consider doing what that attorney did, even if I were convinced that it was legal.
    I might *consider* it, but only if I thought it in my client's and *all*
    the beneficiaries best interests. Even then, I would insist on informed
    consent from all parties with "informed" meaning that they had actually
    consulted with independant counsel.

    The reason I might consider it is because I have seen cases where the
    client needed a transaction closed right away, and would be harmed by a
    "fire sale" scenario. But I am very concerned about both the fact and
    appearance of any impropriety.
    Here's an article that discusses these aspects are fiduciary duty in more detail: http://www.syracuse.com/news/poststa...l=1&thispage=2 My email address is LLM041103 at earthlink dot net.

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