Can a trustee use Trust money to purchase income property to benefit himself and only one of the beneficiaries?

UPDATED: Oct 1, 2022

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Can a trustee use Trust money to purchase income property to benefit himself and only one of the beneficiaries?

The trustee my father of my deceased mother’s irrevocable Trust, used money in her Trust to

purchase an apartment complex for himself and my brother each owns 50%. They have both been receiving income on these apartments and my sister and I, also beneficiaries, have received

nothing. Is it legal to do that?

Asked on September 10, 2017 under Estate Planning, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

It is most likley not legal:
1) A trustee is bound by the terms of the trust, so if the trust makes you and your sister also beneficiaries with your brother and gives you all more or less equal benefits or rights in/to the trust property/assets, the trustee may not ignore that and favor one benefiriary over another.
2) A trustee is also bound by a "fiduciary duty," or duty imposed by law to be loyal to *all* beneficiaries and to NOT engage in "self-dealing," or benefitting himself at the expense of beneficiaries.
Unless there is some provision in the trust justifying or authorizing this specific behavior, as stated, it is likely illegal. A court could order certain actions to be undone, such as requiring them to sell the building and put the proceeds into the trust and distribute them fairly to all beneficiaries; it could also order the trustee to repay out of his own pocket any amounts he improperly took out of the trust or profits improperly made; and court could replace the trustee.
Ideally, you and your sister should jointly hire a trusts and estates attorney to bring a legal action on your behalf. If you truly cannot afford one, you can each file an action in  chancery court (a part or division of county court) for an "accounting" to have the court look into what has been going on and hold the trustee accountable for his actions. You would have to each file an action, which the court might then combine or consolidate, since while you can each represent yourself "pro se" (as your own attorney), neither of you can represent the other. (Obviously, if you want to do this and your sister does not, you can file you own action without her doing so and vice versa.) You would name the trust and the trustee in the lawsuit. Dowload or buy a copy of your state's rules of court and also contact the clerk of the chancery court's office for filing instructions.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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