If you are the trustee of a trust or benefit from one, it can be helpful to know the conflict of interest rules for California trustees. State law prohibits trustees from taking certain actions that involve the trust, but allows them choice in other areas.
What Is a Conflict of Interest?
A conflict of interest occurs when someone has two different goals or concerns that are incompatible with each other, or when someone will get a personal benefit from making a business or official decision. Conflicts of interest can happen for directors of corporations, lawyers, financial advisors, nonprofit board members, trustees, and other professionals.
What Is a Conflict of Interest for a Trustee?
Trustees have duties to the beneficiaries of the trusts that they administer. A trust relationship forms when a trustee holds legal title to property or assets for the benefit of named beneficiaries. These beneficiaries have no legal ownership of the property, so the trustee is supposed to keep it safe for them at the request of the trust settlor.
Unfortunately, the personal interests of the trustee could conflict with his or her responsibilities to the trust beneficiaries. Also, if there are multiple beneficiaries, it can be difficult to balance each of their interests too. But to avoid violating California law, the trustee must obey his or her duties of loyalty and care to the beneficiaries.
What Are Some Examples of Conflicts?
Trustees can have many different kinds of conflicts of interest, such as:
- Wanting to invest trust assets in a personal business venture
- Favoring one beneficiary over the other because one is a relative
- Using money from the trust to pay personal debts
- Gaining a benefit from a business transaction with a beneficiary
- Selling property from the trust to another trust at under market value
In addition, potential conflicts can arise for trustees too. If trustees do not disclose some transactions and make sure they are fair and reasonable, a potential conflict could turn into an actual one.
Anyone who has concerns about conflicts of interest or management of a trust, whether a trustee or beneficiary, should seek legal advice. A lawyer can review the trust and help answer your questions.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.