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Beneficiary Asset Ownership

What’s Mine is NOT Yours!

You do not own the trust property; your interest is as a protector – to manage the trust property for the exclusive benefit of the beneficiaries.

The trust property is not your own. So don’t treat it like yours. Ever.

You must respect the integrity of the trust, itself, the relationship of a trustee to the beneficiaries, as well as the trust property.

The trust is a distinct legal entity, in many ways like a corporation. You don’t own the trust assets and can’t run it like you administer your own personal assets. After all, Tim Cook, the CEO of Apple, doesn’t own Apple, even though he runs it. Apple belongs to the shareholders, even though Cook may be a shareholder. A trust belongs to the beneficiaries, even though you may be a trustee and also a beneficiary. You can’t run the trust anyway you want it.

In legal jargon, you, the trustee, are said to hold or possess “legal title” to the trust property for the beneficiaries, who have an equitable interest in the property. In other words, you, as trustee, will appear as record owner of any property.

That means your name as trustee would appear on all account statements for trust assets which are held at a financial institution, such as a brokerage account. You, as trustee, would complete the account application and any account opening documents for such a financial account. Your name should not appear alone on the documents and statements. Those documents should reflect your capacity as trustee. For example: “John Pankauski, as Trustee of the 2013 Pankauski Family Trust”.

For trust-owned real estate, your name would be on the deed, or on any real estate tax bill, and in any property records – as trustee. Costs and expenses related to trust-owned real estate, such as insurance or maintenance fees, would be billed to you, as trustee. But you don’t own the real estate, any more than you are personally responsible for the insurance or maintenance fees associated with the trust real property. The trust owns the real estate. You, as trustee, hold legal title to it. You are the record owner. If you sign documents, or a deed to convey any property, you will do so “As Trustee”.

You are, in some sorts, a guardian of the property and the rights and interests of the beneficiaries. You are more than a custodian because you are not merely holding assets for another and awaiting further instructions: you actually make the decisions and give the instructions. A custodian or depository (like a bank or brokerage firm) holds assets for you. And you manage those assets and make the decisions on what to do with those assets – for the benefit of the beneficiaries.

As has been discussed, your one goal, and one duty, is to protect and advance the interests of the beneficiaries and the trust as a whole. You should not personally or individually advance your own interests or profit from this relationship, other than to receive reasonable compensation for your service.

You must remember that the trust funds are not your own. You cannot do as you so please with the trust property, or as you might do, if it were your own. If, for example, you personally thought that gold is a great investment, you could not, should not, invest the entire trust portfolio in gold just because you may have invested your own personal funds in gold. You should construct a well-balanced, diversified portfolio which is attuned to the short-term and long-term goals of the trust, risk tolerances of the beneficiaries, and which has a plan or strategy for short-term cash needs and yield as well as long-term appreciation of capital. “But, I bought gold for my personal account” is no investment strategy. It is not a justification for speculating with trust assets, and it never gets you out of trouble. What you do with your own assets or personal investments is irrelevant.

You can’t loan yourself money from the trust even if it’s for a very short period of time, and even if you pay back the trust with a wonderful rate of interest. Such a loan would be an act of self-dealing and a misuse of trust funds which would justify your removal as trustee as well as a surcharge or fine against you personally. Go to a bank – not the trust.

You Can’t Use Trust Funds For Personal Purposes

During the boom times, everybody seems to love real estate and God knows everyone thinks they’re an expert on real estate. As this book goes to press, Florida, and the nation, seem to be experiencing, a small rebound in real estate demand and prices, from the lows of the Great Recession. In Florida, there is a saying that the history of real estate is either “boom or bust”. So let’s use real estate as an example.

Example:

A proposed development looks to be a very exciting, successful project. You, personally, place a deposit with the developer to purchase a pre-construction unit. On a return visit, you speak to the sales manager about purchasing another unit. You also consider purchasing two units for a trust for your nephews. The salesperson informs you that if you buy three more units right now she is able to offer a sizable discount that will not be available at a later date. You’re in: you wire funds from the trust account for the down payment for the three pre-construction units – two for the trust and another one for you.

By 9:00 AM the next day, you have refunded your down payment to the trust, plus interest.

Issue: That’s OK, right?

Answer: No. It’s not. By using trust funds to purchase a unit for yourself, you have breached your fiduciary duty, engaged in a conflicted transaction, and in an act of self-dealing. The trust assets are for your nephews’ use, not yours. It doesn’t matter that you “borrowed” the trust funds for a very short period of time, or that you paid above-market interest to the trust. Trustees don’t use trust funds for personal investments. The trust is not your ATM, your banker or your lender.

From a damage standpoint, since you’ve refunded the funds plus interest, it appears that the trust was not financially damaged. It is been made whole monetarily. However, in a non financial manner, the trust has been damaged: you engaged in a prohibited transaction. You used trust funds for your personal use or gain, and not for the benefit of the beneficiaries. This is an absolute violation of your duty of loyalty, and your ongoing duty to be a fiduciary, and to avoid conflicted transactions and to refrain from acts of self-dealing.

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