Can the trustee buy property from the trust? Only for fair market value. Trust property does not belong to the trustee – he is just managing it. What do we call it when a manager steals money he is managing? That’s right, it’s called embezzlement. Or more simply, stealing.
Let’s say a trust contains a house that is worth $1 million and the trustee buys it for $200,000. This gives him the opportunity to “flip” the house on the market and walk away with $800,000 or live in a $1 million house having only paid $200,000. Even if the trustee is one of the beneficiaries, he is responsible to manage the trust for everyone’s benefit, not just his own.
The trust belongs to all the beneficiaries. If a trustee uses the trust’s money for his own needs in any way or transfers trust money to himself, he is considered by the law to be taking everyone’s money, not just his own. As an example, if he takes four thousand dollars, he is not taking four thousand dollars of his own money. He is stealing a thousand dollars from each of his siblings. If he takes a penny, most of that penny belongs to the other beneficiaries.
What can happen if a trustee neglects good advice and buys the house from the trust for less than fair market value? Nothing good. The trustee can be removed by the judge on the case. The court will force the trustee to return the property to the trust or pay restitution to the beneficiaries of the trust. The court might order the trustee to pay for his own attorneys’ fees as opposed to using trust funds to pay for his attorney’s fees. The judge may even order the trustee to pay the beneficiaries’ attorneys’ fees. What is scarier is that the trustee can even be criminally prosecuted for stealing. That’s right, a criminal prosecution even if the trustee is one of the beneficiaries of the trust that contains the property. The Surrogate’s Court judge can refer the case to the District Attorney’s office, which has the power to prosecute the case in criminal court.
The trustee cannot buy property from the trust because the property belongs to someone else. Unless he pays full price for it. As explained above, doing so is stealing and can lead to an array of legal woes.
Although we talk about a trustee, the same rules apply to an administrator and a trustee, as well as a preliminary trustee, administrator d.b.n., administrator c.t.a.d.b.n., administrator c.t.a., ancillary trustee, ancillary administrator, and ancillary administrator c.t.a. 
Above, we’ve referred to the trustee as a manager. The legal term for someone managing money, including a trustee is “fiduciary.”  New York’s Estates, Powers and Trusts Law governs the conduct of a trust fiduciary, as well as a trustee and an agent under a Power of Attorney.
New York Consolidated Laws, Estates, Powers and Trusts Law – EPT § 11-1.6 states that “Every fiduciary shall keep property received as fiduciary separate from his individual property. He shall not invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary.” 
New York’s Penal Law (the Criminal Law) states that “A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” 
The trust is the owner of the property. If a trustee buys property from the trust at less than the full market price, even if he’s paying something for it, he commits larceny.
New York Penal Law continues to say that “Larceny includes a wrongful taking, obtaining or withholding of another’s property, with the intent prescribed in subdivision one of this section, committed … by conduct heretofore defined or known as common law larceny by trespassory taking, common law larceny by trick, embezzlement, or obtaining property by false pretenses.” 
Having your New York trust lawyer get a release form beneficiaries is especially crucial when the transaction in question involves the trustee personally, such as when the transaction is between the trust and the trustee or the trustee derives some sort of benefit from the transaction. For example, if the trustee is buying the decedent’s business, house, or other property, the trustee should obtain a written release from the beneficiaries, or at least get them to approve it in writing, in order to avoid the possibility of being sued. A trustee buying assets from the trust can trigger feelings of inequity in beneficiaries, so it is important to communicate with them, explain that they are still getting a fair share of the trust, and that they are actually getting more money than they would have if not for you buying them out because of cost savings on transaction costs such as paying a broker. It is important that there is a feeling that the trustee fulfilled his responsibilities to the beneficiaries.
The most crucial release that a trustee can get from the beneficiaries is at the end of the trust. Once the assets are collected or sold and the debts are paid out, and it’s time for the trustee or administrator of a New York trust to disburse the funds to the beneficiaries. But before the trustee does that, it is important to get the release from the beneficiaries that states that they are satisfied with what they are getting and are never going to sue the trustee. The best release comes with an informal accounting, which provides a summary of what property went into the trust, what the expenses were, and what is the share of inheritance for each beneficiary.
To sum up, trustees should not buy property from the trust, unless it is for fair market value and with either signed consent from each and every beneficiary or an order of the court authorizing the trustee to buy the property.
The trustee should place all trust funds into a trust account
The trustee can only use trust funds to pay the legitimate expenses of the trust, taxes and legal fees.
Whether you are a beneficiary who thinks that the trustee is buying property of the trust for less than full market value, or if you are a trustee and you feel that you are being falsely accused that, you can speak with New York trust attorney Albert Goodwin, Esq. He can be reached at (212) 233-1233.