A fiduciary assumes the duty of acting in the best interests of another person. But this responsibility is violated when the fiduciary acts solely in their own interest. This self-dealing can lead to trust contests and other estate lawsuits.
Fiduciaries must meet ethical and legal standards that require them to put the interests of the other person first when they manage their legal or financial affairs. They play an important role in administering an estate or acting as a trustee.
Self-dealing occurs when a trustee, will executor or other fiduciary uses their position of trust to act in their own best interest instead of the interest of the trustor or person who created trust or the estate of the testator or the person who signed the will.
Self-dealing and trusts
A trust is a legal entity that provides for the transfer of assets to a fiduciary known as a trustee. Trusts allow the build-up of an estate’s wealth while reducing estate and gift taxes for its heirs or beneficiaries.
The trustee is required to administer the trust in accordance with the terms set by the trustor. Because of the power and discretion given to a trustee, it is important to select a trusted, ethical, and competent fiduciary.
A trustee engages in self-dealing if they do not act in the interests of the trustor or the trust’s beneficiaries and they use their position for self-enrichment. Examples include making inappropriate investments with trust assets, lending trust assets to their friends or family members, and leveraging trust assets to get a loan.
Other self-dealing involves investment churning to generate higher broker fees for receiving a kickback from the broker and buying property or other assets held within the trust. Trustees have also distributed trust assets to themselves, their friends, or members of their families.
It is important to take legal action to protect your rights when a trustee is self-dealing. A lawyer can pursue these actions in court or take other steps to stop illegal and unethical behavior.