If a trustee sells trust property to themselves or a family member for less than fair market value, you may be dealing with a serious breach of fiduciary duty under California law.
Trustees are not allowed to use their position to benefit themselves at the expense of the beneficiaries. When that happens, legal action may be necessary to recover the lost value and protect your inheritance.
At The Grossman Law Firm, Attorney Scott Grossman represents California beneficiaries in trust litigation involving self-dealing, undervalued property transfers, and misuse of trust assets. These situations often begin quietly, but over time, the financial damage can become substantial.
Why Is Selling Trust Property Below Market Value a Problem?
Under California law, trustees owe a duty of loyalty to beneficiaries.
That means a trustee cannot:
- Use trust assets for personal benefit
- Put their interests ahead of the beneficiaries
- Engage in self-dealing transactions
- Manipulate trust property sales for personal gain
One of the most common examples of self-dealing occurs when a trustee sells trust property to themselves or someone close to them for less than the property’s actual value.
Even if the trustee claims the sale was “fair,” the transaction may still violate California fiduciary duty laws if the trustee failed to properly inform the beneficiaries or sold the property for less than fair market value.
When Trust Property Sales Become Trust Litigation
Not every property sale creates a legal issue
However, beneficiaries should pay attention when:
- A trustee purchases trust property personally
- A property is sold far below market value
- The sale happens without transparency
- Beneficiaries are not notified about the sale
- Independent appraisals are missing
- The trustee refuses to explain the transaction
In many cases, beneficiaries do not discover the problem until months or years later, after the property has significantly increased in value or been resold for profit.
At that point, recovering the loss often requires trust litigation.
A Real-World Example: A Trustee Purchased Trust Property Below Market Value
The names, facts, and circumstances in this example have been modified for privacy.
Rebecca contacted The Grossman Law Firm after growing concerned about how her brother, Thomas, was handling their parents’ trust.
Their parents, Linda and Howard, created a California trust in 2011. The estate included a Newport Beach home, investment accounts, and other liquid assets. After Howard passed away in 2017, Linda continued serving as the surviving trustee until her death in March 2021.
Under the trust terms, Rebecca and Thomas were equal beneficiaries. After Linda’s death, Thomas became the trustee responsible for administering the trust and distributing the assets.
The largest trust asset was the Newport Beach property, which later appraised at 1.6 million.
In mid-2021, Thomas told Rebecca that the real estate market had “softened” and that selling the property quickly would be in everyone’s best interest. He later informed her that he planned to purchase the property himself.
At first, Rebecca tried to trust the process.
Thomas claimed the price was fair and explained that a direct sale would avoid realtor commissions, repairs, and delays. Rebecca initially believed it was simply the easiest way to handle the property.
Thomas ultimately transferred the property to himself in September 2021 for approximately $1.0 million.
Warning Signs the Sale Was Not Fair
Over time, Rebecca began noticing inconsistencies.
Comparable homes in the area were selling for substantially more. By early 2022, Rebecca discovered that Thomas had refinanced the property with a valuation of nearly $1.6 million.
At that point, Rebecca became concerned that a substantial portion of her inheritance had been lost through the sale.
At the same time, she still had not received a formal accounting.
When Rebecca began asking questions about the valuation, records, and sale process, communication changed. Responses became limited. Requests for financial documents and appraisals went unanswered.
By that point, Rebecca realized something was seriously wrong and contacted The Grossman Law Firm.
How The Grossman Law Firm Investigated the Sale
Once our trust litigation team became involved, immediate action was taken.
Once our trust litigation team was hired, The Grossman Law Firm moved quickly to:
- Obtain transaction and escrow records.
- Investigate the valuation used during the transfer.
- Review whether proper disclosures had been made.
- Examine the trustee’s compliance with California fiduciary duties.
- Determine the financial loss to the trust and Rebecca’s inheritance.
As the evidence developed, serious concerns emerged regarding the sale process and the valuation used to transfer the property.
A trust litigation petition was filed alleging breach of fiduciary duty and self-dealing.
During litigation, refinance records, property valuations, and market comparisons created significant problems for the defense. The difference between the transfer price and the property’s actual value became increasingly difficult to justify.
The case was resolved in late 2023.
As part of the resolution, Rebecca received $800,000 for her share of the Newport Beach home, recovering the loss caused by the below-market sale. She also recovered her interest in the trust’s investment accounts and other liquid assets that had still not been distributed.
Instead of absorbing the financial damage caused by the trustee’s conduct, Rebecca was able to challenge the transaction and recover the inheritance value that had been lost through the improper sale.
This is how many California trust disputes unfold. Trustees sometimes present below-market transfers as simple family arrangements or administrative shortcuts. But when trust property is sold for less than fair market value to benefit the trustee personally, beneficiaries may have the right to challenge the transaction and recover the loss.
Warning Signs of Trustee Self-Dealing
In many cases, beneficiaries notice problems gradually.
Common warning signs include:
- A trustee purchasing trust property personally
- No independent appraisal provided
- Pressure to approve a quick sale
- Delayed or missing accountings
- Limited communication about the transaction
- A property being resold or refinanced shortly after transfer
When these issues appear together, it is often worth investigating further.For additional examples of trustee self-dealing, see “Trustee Self-Dealing in California: 4 Examples.”
What You Can Do
If you believe a trustee sold trust property improperly or below market value, early action matters.
Before more time passes, contact The Grossman Law Firm to evaluate your options.
The type of information that could be helpful, includes:
- Trust documents and amendments
- Property sale records
- Appraisals or comparable sales
- Communication with the trustee
- Escrow or refinance information
- Any accounting you have received
The earlier these issues are investigated, the easier it becomes to preserve records, trace financial activity, and protect your inheritance. The Grossman Law Firm can evaluate the translation, investigate potential self-dealing, and take legal action to help recover losses caused by trustee misconduct.
Why Timing Matters
Delays can make these cases more difficult.
As time passes:
- Properties may be refinanced or resold
- Financial records become harder to obtain
- Equity may be transferred or depleted
- Witness memories fade
In many California trust litigation matters, early legal action is what preserves leverage and prevents further financial harm.
FAQ
Can a trustee buy property from the trust in California?
Sometimes, with proper appraisal and notice to other beneficiaries, a full market value purchase may be appropriate. But, these transactions are heavily scrutinized under California law. A trustee cannot use their position to benefit themselves unfairly.
What is self-dealing in a California trust?
Self-dealing occurs when a trustee uses trust assets or authority for personal benefit instead of acting solely in the beneficiaries’ interests as required in California law.
Related Resources
- Overview of California Trust Litigation
- 20 Ways Your Trustee May Be Breaching Their Fiduciary Duties
- Beneficiary Rights in California
- Trustee’s Duty: What is the Prudent Investor Rule?
- How to Get Your Trustee to Distribute Your Inheritance?
- Can’t Afford a Probate or Trust Attorney?
How The Grossman Law Firm Can Help
When trustees engage in self-dealing or misuse trust property, beneficiaries often need immediate legal intervention to protect their inheritance.
At The Grossman Law Firm, we help beneficiaries throughout California recover losses caused by trustee misconduct and enforce their rights through 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 cases will be scheduled for a Free Phone Consultation with Attorney Scott Grossman.