Trustee Selling Trust Property to a Son – Is the Sale Valid, Can You Remove the Trustee and Can You Get a Surcharge

The trustee’s sale of trust property to a son may be considered a conflict of interest and breach of fiduciary duty when proven that such sale resulted to losses for the trust. On its face, the sale to the son will not be considered as misconduct, unless it is proven that such negligent act or misconduct of the trustee resulted to financial losses to the trust. Matter of Parisi, 2011 NY Slip Op 52429(U) (1998).

A potential conflict of interest between a fiduciary and an interested party does not warrant the denial of letters to, or removal of, a fiduciary. It is actual misconduct, and not a conflict of interest, that justifies removal of a fiduciary. Matter of Marsh, 179 A.D.2d 578 (1992)

Is the transaction valid?

Generally, any sale made by the trustee is considered valid until challenged by a beneficiary or an interested party. Under EPTL § 11-1.1(b)(5)(b), the fiduciary, absent any limitations in his appointment, may sell real estate (not specifically devised) at a public or private sale, and on such terms as in the opinion of the fiduciary will be most advantageous to the beneficiaries. The consent of the beneficiaries is not required to the sale, but it is prudent for the trustee to get releases or waivers from the beneficiaries so that he may not be considered personally liable for any surcharge in case it is found that the sale price is lower than the appraised value.

Can you remove the trustee for selling trust property to a son?

The grounds for removing an trustee are provided in SCPA § 711. If the trustee sold the property to himself, his spouse, or an entity he controls, it is considered self-dealing, and if he sold it without court approval, the trustee is liable for misconduct. However, the sale to the son will only be considered as misconduct if shown that such sale was prejudicial to the trust. With proof of financial loss to the trust, the trustee can be removed for wasting or improperly applying the trust assets. If the trust could have gotten a higher price than the price the trustee sold it to the son, then the trustee is liable.

Can you get a surcharge?

A surcharge is a charge imposed by the court to be paid by the fiduciary (trustee, administrator, or trustee) from his personal funds based on losses incurred by the trust or trust due to the fiduciary’s negligence or misconduct.

In order to prove entitlement to surcharge, one must prove that the trust suffered losses due to the fiduciary’s negligence or misconduct. To prove that the sale to the son financially damaged the trust, one must show a third-party independent appraisal of the property showing a higher amount than the sale price. This will be sufficient evidence to surcharge the trustee with the amount of loss.

In addition, if proven that the trust suffered losses, the trustee may be held liable for attorney’s fees. Because of the trustee’s negligent act or misconduct, the trustee will not able to use trust assets to pay for his attorney’s fees. Application of Linda Milea, Beneficiary of the Alice M. Amos Revocable Trust v. Hugunin, et. al, Individually and as Trustees of the Alice M. Amos Revocable Trust, 2009 NY Slip Op 51422(U); Giblin v. Murphy, 73 N.Y.2d 769 (1988); Yochim v. Mount Hope Cemetery Association, 163 Misc.2d 1054 (1994).

Whether you are an interested party who suspects that the trustee has committed self-dealing transactions or has caused financial losses to the trust, or you are a trustee who is wrongly being accused of wrongdoing, we at the Law Offices of Albert Goodwin, are here for you. You can call us at 1-800-600-8267 or send us an email at [email protected].