Throughout your estate plan, you will likely nominate or appoint several people or agencies to fiduciary positions. A fiduciary position is a position of trust, meaning you should take as much time as is necessary contemplating your choice before deciding who the best person (or entity) is for the position. One way a fiduciary can breach the duty of trust imposed on him/her is by engaging in self-dealing. To ensure that you understand the importance of a fiduciary’s role in your estate plan, an Overland Park estate planning attorney at Parman & Easterday explains the concept of self-dealing and what happens if a fiduciary violates his/her duty by engaging in self-dealing.
What Is a Fiduciary?
In very broad terms, a fiduciary is a person or entity (a trust company or trust department of a bank) that is in a position of trust over someone else. Within your estate plan, the most common example of a fiduciary is the Trustee you must appoint when you create a trust. The duty of loyalty to the beneficiaries of the trust is among the most fundamental of the duties a Trustee has during the administration of a trust. Although most Trustees perform their duties and responsibilities admirably, with care and commitment, there are Trustees who violate the duty they have to the beneficiaries. One way a Trustee might violate that duty is through self-dealing.
What Is Self-Dealing?
In a nutshell, self-dealing by a Trustee occurs when the Trustee places his/her own interests over those of the beneficiaries. Self-dealing effectively creates a conflict of interest which is something you don’t want to occur during the administration of a trust.
Self-dealing can take several forms from outright stealing to much more subtle actions that amount to self-dealing. A Trustee could simply move assets out of the trust and into his/her name. More often, however, self-dealing is more subtle. For example, a Trustee might move assets from one holding account to another until they eventually end up in an account owned by the Trustee or an account that benefits the Trustee.
Another example of a fiduciary within your estate plan is the Agent you appoint when you execute a Power of Attorney. That Agent might engage in self-dealing if he/she uses the authority granted by the POA to gift himself/herself property owned by the Principal or to purchase assets owned by the Principal for less than fair market value.
A fiduciary may also be entitled to a fee for his/her services. Administering a trust can be a drain on the Trustee’s time which is why a fee is reasonable. An excessive fee, however, is not acceptable and could even rise to the level of self-dealing. For example, if a Trustee routinely bills a trust for hundreds of dollars when all the Trustee did that month was drive by the trust property to make sure everything appeared to be in order. Another example involves a Trustee using trust assets to purchase things for him/her that have nothing really to do with trust business.
All of these examples should help you to understand the concept of self-dealing by a fiduciary. If a fiduciary does engage in self-dealing, the beneficiary or injured party has legal remedies available; however, avoiding self-dealing in the first place is always best. While there is no way to guarantee that a fiduciary won’t engage in self-dealing, by taking the time necessary to really think about who to appoint to a fiduciary position within your estate plan you can dramatically decrease the likelihood of self-dealing.
Contact an Overland Park Estate Planning Attorney
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to choose the fiduciaries in your estate plan, or what to do if a fiduciary has violated his/her duty, contact an experienced Overland Park estate planning attorney at Parman & Easterday by calling 405-843-6100 or 913-385-9400 to schedule your appointment today.