Table of Contents
Can a Trustee Buy Trust Property?
Why Trustee Purchases Are Usually Considered Self-Dealing
When a Trustee May Legally Purchase Trust Property
Legal Requirements Under California Probate Code
What Happens When a Trustee Buys Trust Property Improperly
Additional Considerations in Trustee-Related Real Estate Transactions
How The Grossman Law Firm Can Help
Key Takeaways
- A trustee can purchase trust property in California, but only under narrow, strictly regulated circumstances.
- The California Probate Code generally prohibits self-dealing unless the trust document explicitly authorizes it, all beneficiaries consent, or the probate court approves it.
- Any trustee purchase must be transparent, adequately documented, and supported by fair market value evidence.
- Improper purchases expose trustees to removal, surcharge, and breach of fiduciary duty claims.
- Beneficiaries who suspect self-dealing should act quickly to protect their rights.
Can a Trustee Buy Trust Property?
Beneficiaries frequently ask whether a trustee can legally purchase real estate or other assets from the trust they manage. The short answer: yes, but only in minimal situations, and only if the transaction meets strict California fiduciary standards.
At The Grossman Law Firm, we help beneficiaries across California challenge improper trustee transactions, including self-dealing and unfair property purchases. Understanding the rules governing these transactions is the first step.
Why Trustee Purchases Are Usually Considered Self-Dealing
California Probate Code requires trustees to act with loyalty and avoid conflicts of interest. Probate Code §§16002 and 16004 prohibit a trustee from:
- Using trust property for personal benefit
- Entering transactions that favor themselves over beneficiaries
- Engaging in self-dealing without authorization
Because purchasing trust property gives the trustee a personal financial advantage, the law treats it as inherently suspect unless clear safeguards are in place.
When a Trustee May Legally Purchase Trust Property
A trustee may purchase trust property only if one of the following is true:
1. The Trust Document Explicitly Allows It
Some trusts include a clause permitting trustee self-dealing. If the trust language authorizes the trustee to buy trust property, the trustee must still:
- Pay fair market value
- Provide full disclosure
- Act in the beneficiaries’ best interests
2. All Beneficiaries Give Informed, Written Consent
If every beneficiary agrees to the sale after receiving complete information, including appraisal value and transaction terms, the sale may proceed.
3. The Probate Court Approves the Transaction
Court approval is required when:
- The trust prohibits self-dealing
- Beneficiaries do not all consent
- There is an apparent conflict of interest
- The trustee wants protection from later litigation
Court supervision ensures the sale is fair and transparent.
Without one of these authorizations, the trustee risks violating fiduciary duties.
Legal Requirements Under California Probate Code
A trustee purchase must satisfy several legal requirements:
Acting in Beneficiaries’ Best Interests
The trustee’s loyalty must remain with the beneficiaries, not themselves. The trustee must be prepared to justify why a sale to themselves was the best available option.
Fair Market Value
The trustee must obtain a professional appraisal and pay the full market value. Anything less exposes them to surcharge.
Full Transparency and Disclosure
The trustee must disclose:
- Their intent to purchase
- Terms of the sale
- Valuation details
- Any potential conflicts of interest
Compliance With Trust Terms
If the trust requires beneficiary notice, consent, or court involvement, the trustee must strictly follow those provisions.
Complete Documentation
Trustees should maintain records of:
- Appraisals
- Purchase agreements
- Disclosures
- Beneficiary consents
- Court orders (if any)
These records become critical if the sale is later challenged.
What Happens When a Trustee Buys Trust Property Improperly
Trustees who violate self-dealing laws face serious consequences, including:
- Removal as trustee
- Surcharge (personal financial liability)
- The court orders undoing the sale
- Repayment of losses to the trust
- Attorney’s fees
Beneficiaries can petition the court to challenge the transaction, compel an accounting, or seek to unwind an improper sale.
If you suspect your trustee has engaged in improper self-dealing, see: 20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties
Additional Considerations in Trustee-Related Real Estate Transactions
Trustee purchases raise additional issues that beneficiaries should be aware of:
Asset Diversification
If the trustee shifts trust holdings to benefit themselves, it may violate the duty to diversify under Probate Code §16047.
Trustee Compensation
Compensation must be handled separately from any purchase transaction and must follow trust terms.
Professional Guidance
Because trustee self-dealing is heavily scrutinized, both trustees and beneficiaries should consult an experienced California trust litigation attorney before proceeding.
Related Resources
- Overview of California Trust Litigation
- Know What You’re Getting Into: The Timeline of a Trust and Estate Lawsuit
- Can a Trustee Be Removed for Mishandling Assets?
- Beneficiary Rights in California
- 20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties
- Can’t Afford a Probate or Trust Attorney?
FAQ
Is a trustee allowed to buy trust property without telling the beneficiaries?
No. Full disclosure is required. Failing to disclose is a breach of fiduciary duty.
Does a trustee need court approval to buy trust property?
Often yes, especially when the trust does not allow self-dealing or when not all beneficiaries consent.
Can a beneficiary challenge a trustee’s purchase?
Yes. Beneficiaries can petition the probate court to unwind the sale, remove the trustee, or impose a surcharge.
What is the most significant risk with trustee property purchases?
Self-dealing. Even if the trustee believes the purchase is fair, the court may view it as improper without proper authorization.
How The Grossman Law Firm Can Help
At The Grossman Law Firm, we help beneficiaries and heirs throughout California enforce their rights in probate and trust litigation.
Call (888) 443-6590 or fill out our Get Help Now form. Our Intake Specialists can evaluate your case at no cost to you. Qualifying matters will be scheduled for a Free Phone Consultation with Attorney Scott Grossman.
Originally Published Nov 8, 2023