When you establish a trust, you can place assets into it for a designated beneficiary and name a trustee to manage that property. Once property is transferred to a trust, the trust itself becomes the rightful owner. If the trust is irrevocable, you can no longer control or claim the assets. This arrangement can facilitate the transfer of assets after your death, reduce tax liability and, in some cases, protect that property in the event you or the beneficiary experience a lawsuit or bankruptcy.
A trustee must comply with specific rules and laws that govern the functioning of whichever type of trust is established. Although trustees are often third parties, you as the grantor can also manage the assets for the benefit of someone else, such as a minor child. It’s a fiduciary relationship that often raises questions like “Can a trustee transfer property to themselves?”
The answer is complicated. Sometimes they can, but only under circumstances directly permitted by the terms of the trust. This blog addresses that complex issue and explains why such transfers may be allowed.
The Role of the Trustee Explained
It is the trustee’s responsibility to hold title to trust property and manage it for the named beneficiaries. Trust documents include specific instructions for managing the property or distributing income, and the trustee must follow them. These obligations do not change even if the trustee is also a trust beneficiary.
Trustees have a fiduciary duty, which is a legal and ethical obligation, to act solely in the beneficiary’s interests when controlling trust assets. They cannot use trust property primarily to benefit themselves or third parties who are not beneficiaries. This means they can’t self-deal, which is another term for using trust assets to serve their own interests instead of the trust’s. Prohibited activities include:
- Stealing assets
- Modifying the terms of the trust document for their own benefit
- Using trust funds for unapproved purposes
- Selling trust property for less than fair market value
What About Transferring Property?
As a trustee, if you sold trust property to yourself, you would have a conflict of interest since you would both be the buyer and seller. If you pay less than fair market value for the property, you would not be acting in the beneficiaries’ best interest, which normally compels you to get the maximum price for it.
A trustee may also be a beneficiary in some cases. For example, a family trust created by your father may have you as trustee and beneficiary. If your siblings are also trust beneficiaries, you may want to get their approval before selling or transferring any trust property to yourself in order to avoid any potential disputes later on.
If you’re in doubt about your ability to transfer property to yourself as a trustee or you’re a beneficiary with concerns about how a trust is being handled, your best option is to speak to a New York estate planning lawyer. Although a trustee’s actions will mainly be dictated by the terms of the trust, interpreting the law in this regard can be challenging. An attorney can give you the advice you need to make the right decision.
Ledwidge & Associates
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