Loyalty Means No Self-Dealing
The duty of loyalty is one of the most important duties a trustee carries. The rule is straightforward: the trustee manages trust property for the beneficiaries, not for personal gain.
A trustee shall administer the trust solely in the interests of the beneficiaries.
A.R.S. § 14-10802(A)Any transaction involving the trustee's own personal account or interests creates a conflict. The law treats those transactions as voidable.
Self-dealing covers more ground than most people expect. For example, selling trust property to yourself or buying assets at a discount violates this duty. Using trust funds for personal expenses also violates it.
The statute presumes a conflict in certain cases. This means transactions with a spouse, parent, sibling, descendant, agent, or attorney face extra scrutiny.
When Conflicted Transactions Are Allowed
Not every conflict automatically voids a transaction. The trust document itself may authorize certain transactions. A court can also approve them.
A beneficiary who fully understands the situation can consent or ratify the action. The trustee must show the transaction serves the beneficiaries' interests.
A sale, encumbrance or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or that is otherwise affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary affected by the transaction.
A.R.S. § 14-10802(B)The statute also permits fair transactions like reasonable trustee compensation. It allows deposits in a financial institution the trustee operates. It also covers advances the trustee makes to protect the trust.
The key word is "fair." If a transaction benefits the trustee at the beneficiaries' expense, it fails the loyalty test.
A trustee who works at a regulated financial institution must be especially careful. The overlap between personal business interests and trust management can lead to challenges. Keeping clear records helps show that every decision served the beneficiaries' benefit.