When you create a revocable living trust, you as the grantor will generally serve as both the trustee and the beneficiary while you are alive and well. If you become unable to make sound financial decisions late in your life, the successor trustee that you name in the trust agreement will be empowered to administer the trust. This raises an interesting question: Can the successor trustee purchase property that has been conveyed into the trust?
Envision a hypothetical scenario. Let’s say that Ann can no longer make her own financial decisions. Her daughter, Jill, is the successor trustee of Ann’s revocable living trust. Ann is residing in a long-term care facility and it is quite expensive. Ann’s home is titled in the revocable living trust. This asset must be sold so the proceeds can be used to pay for the long-term care that Ann is receiving. Jill doesn’t want to sell the home to a third-party. She would like to purchase the home herself, but she is not sure she is allowed to do so, since she is the trustee. She is concerned about “self-dealing.” The trustee may be prevented from purchasing property that has been conveyed into the trust because it may not be in the best interests of current and future beneficiaries. Family members who have a financial interest in the trust would certainly scrutinize any purchase of trust property by the successor trustee.
The answer to the question of “self-dealing” depends upon the terms of the trust. There will be a section in the trust agreement titled “Power of Trustee” or something to this effect. This section could possibly grant the trustee the power to purchase trust property as long as she is paying fair market value.
The trust may have a “Trust Protector,” who is an unrelated person who is given extraordinary powers over the trust to remove conflicts and resolve situations like this. It may be possible for the Trust Protector to amend the terms of the trust to allow the purchase of the home. This will all depend on the way the original trust agreement was drafted.
What do you do if you are a successor trustee who is in a situation such as this one? The wise course of action would be to put the purchase on hold until you discuss the matter with a licensed estate planning attorney. He or she will examine the terms of the trust and make the appropriate recommendations.
Sanford M. Fisch
CEO & Co-Founder
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555