Legal Question in Wills and Trusts in California
If the trust gives the successor trustee the powers listed below (among others), and the successor trustee who wrote the trust instrument is to inherit principal, and takes over while the surviving trustor is still alive, can s/he self-deal with impunity? For example, can that trustee get away with using principal from the trust to pay off personal real-estate loans? Can s/he, employing an investment fund manager who works through the institution that made the real-estate loan, put up trust assets as secondary collateral? (I have no knowledge of terminology.) Is it just my naivete that makes the assigned powers appear sinister?
"To hold securities or other property in the Trustee's name as Trustee under this trust, or in the Trustee's own name, or in the name of a nominee, or the Trustee may hold securities unregistered in such condition that ownership will pass by delivery."
"To borrow money, and to encumber trust property by mortgage, deed of trust, pledge, or otherwise, for the debts of the trust or the joint debts of the trust and a co-owner of trust property."
3 Answers from Attorneys
It really depends on the specific transaction, and, if the trustor is still alive, whether it is for his/her benefit. All the trustee powers are limited by fiduciary duty- a high duty to act only for the benefit of the beneficiary.
Mr. Cusack is correct. The examples you provide sound like self-dealing on the part of the Trustee which are probably not in the best interests of the surviving trustor. But, it does really depend on the language in the trust to determine if the trustee is acting improperly.
You should contact an attorney to review the trust document. If you are contingent beneficiary, you may be entitled to an accounting by the trustee.
The trustee is usually entitled to compensation. So the trustee may claim that the distributions to himself/herself is compensation. Other than that, the trust instrument usually restricts the trust assets being used solely for the trustor's/settlor's use or benefit while that person is alive. So using trust assets as collateral for the trustee's personal assets would almost always be prohibited.
As the other attorneys suggest, you should seek out counsel to further assist you.
Good luck.
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