A trustee must administer the trust solely in the interests of the beneficiary. This is called the trust fiduciary duty of loyalty.
Hartman v. Hartle
122 A. 615 (N.J. Ch. 1923).
Facts
When Mrs. Geick died, her will directed the executors to sell the real estate and divide it equally between the children. While administering the estate, one of Mrs. Geick’s sons purchased the farm for his sister Mrs. Dicker, who was the wife of one of the executors. Mrs. Dicker then sold the farm for a profit.
The complaint here is that the estate was not fairly distrubuted amongst the children and that Mrs. Dicker was disqualified from taking the property because she was the wife of the executor.
Analysis
An executor cannot take property for personal use. A spouse of an executor is equally disqualified. As such, becasue the court cannot order the resale of the property (taking it from an innocent purchaser), the best solution would be to divide the profits of the sale from Mrs. Dicker equally between the beneficiaries.
In re Gleeson’s Will
124 N.E.2d 624 (Ill. App. 1955).
Facts
In her will, Ms. Gleeson nominated Con Colbrook as executor and trustee. The trust assets included 160 acres of farm land that was to be maintained for the benefit of Ms. Gleeson’s three children. During Gleeson’s life, Colbrook and a partner farmed the land and had a lease with Gleeson to do so. Ms. Gleeson died shortly before the farming year was to begin. Rather than finding a new farmer, Colbrook continued to lease the land to himself, farm it, and take some of the profits. When the trust report was issued, Gleeson’s children complained.
Analysis
A trustee is not permitted to make deals with himself regarding the trust property. This is clearly a dealing. Although Colbrook argues the circumstances were unique—the timing of Gleeson’s death shortly before farming season, the fact that he had sowed the fall before, the fact that he had paid a fair price for the lease—the court says this was not unique enough to engage in the dealings. When Gleeson died, Colbrook had the option to continue either as a trustee or a farmer. He chose the trustee. Because there was not authorization from the beneficiaries to deal in the property, and because he was acting as a trustee, the dealings were improper.
Additional Notes
These two cases are examples of the no further inquiry rule. That is, once there is evidence the trustee (or someone who has fiduciary obligations) has engaged in self-dealing, then there is no further inquiry into whether the trustee was acting in good faith or fair dealing. If the trustee gained a profit, even in good faith, then that profit is removed and given to the beneficiaries.
