If you have been appointed as a Trustee of a Trust that has other people as beneficiaries, you need to exercise extreme care and caution about how you handle the Trust assets. This is especially the case if you make transactions for the Trust that could be seen as self-interested. In Texas, the law is not on the Trustee’s side if a dispute over the transactions arises.
In an ordinary civil lawsuit, the plaintiff has the burden to prove that the defendant committed the act complained of. However, in Texas, when a Trust beneficiary alleges self-dealing by a Trustee, the law automatically assumes that the transaction was unfair. The Trustee then has the burden to prove that the transaction was fair and to the benefit of the trust.
This does not mean that a Trustee cannot make a Trust transaction that also benefits his or her own business interests. It does mean that the Trustee needs to be extra careful and upfront about the transaction. The Trustee must be able to prove that the transaction was fair to the Trust and had the potential to benefit the Trust beneficiaries. Before making any self-interested Trust transactions, Trustees should consult with an experienced Trust administration attorney to determine if the transaction is appropriate.
Stephen A. Mendel, Estate Planning Attorney
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