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Can a trustee use trust funds for himself? (October 21, 2014 federal trust case opinion)

Uncategorized Oct 26, 2014
post about Can a trustee use trust funds for himself? (October 21, 2014 federal trust case opinion)

A federal court opinion on a trust lawsuit was just handed down by Judge Kimba Wood in the US District Court, Southern District of New York.  Any trustee, trust lawyer or beneficiary of a family trust or investment trust may want to read this opinion and the acts of self dealing by the trustee.

Trustees Behaving Badly

  • Remember that a trustee, when they serve or agree to serve as trustee, is a fiduciarywho consents to placing the interests of the trust beneficiaries above everyone else’s–including the trustee’s own self interests
  • Any trust lawyer Boca Raton will tell you that this concept is a basic concept of not onlyFlorida Trust Law but also trust law across the country
  • A trustee can’t use trust funds for personal reasons
  • The trust property is not the trustee’s ATM or his or her checkbook
  • While it’s true that a trustee may pay himself or herself reasonable compensation, you have to uphold the terms of the trust
  • And trusts tell the trustee to distribute, or not distribute, trust funds for the beneficiaries:not the trustee !
  • But aren’t there trusts where the trustee = a beneficiary?  Of course.  But that trustee’s rights to the trust are limited by Trust Law and the terms of the trust document: it doesn’t mean that the trustee can “borrow” money from the trust and then put it back, orpurchase personal items with trust money and then claim that money taken from the trust was “compensation” or “fees” or a “trust advance”
  • Trustees who are beneficiaries can’t play money games !

Can a Trustee Make Gifts to Himself or Loan Money to Herself?

  • Trustees can’t engage in acts where there is a conflict of interest
  • Ask any probate lawyer Palm Beach Gardens and they will tell you that Florida law is clear: trustees cannot engage in acts of self dealing
  • Trustees can’t make loans to themselves from the trust
  • Do you know the exceptions to the rule against self dealing and when, or under what circumstances, a trustee “self dealing” may be permitted?  Or later approved or ratified?

Abuse of Trust, Breach of Trust, Breach of Fiduciary Duty, Conversion

  • Check out the case of Cobalt Multifamily Investors v. Mark A. Shapiro
  • Case No. 06-CV- 6468 (KMW (MHD)
  • 2014 WL 5343306
  • Someone prepared the trust document in this case and also served as trustee
  • The trustee distributed money to himself and others
  • Trustee made payments using trust funds for the defendant’s benefit
  • Trustee signed or allowed his name to be signed, on checks from the trust account payable to the defendant, himself, his law firm, others, for cars, for construction and improvements to a residence, and jewelry
  • You get the picture
  • In Palm Beach trust litigation cases, when a trustee is using trust funds to pay non beneficiaries, or using trust assets for non trust purposes, like personal purposes like cars and jewerly the trustee under Florida Trust Law can be responsible for damages, even perhaps punitive damages, and conversion and breach of trust, what others call breach or abuse of a fiduciary duty

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