Can a Trustee Sell Trust Property to Himself in California?
A California trustee can purchase trust property, but doing so creates a conflict of interest that requires court approval, independent appraisal, full disclosure to all beneficiaries, and arm's-length terms. Self-dealing without these safeguards is a breach of fiduciary duty.
California Probate Code Section 16004 prohibits trustees from engaging in transactions that create a conflict of interest between the trustee's personal interests and the interests of the beneficiaries. Buying trust property is the classic self-dealing transaction, the trustee's interest (paying as little as possible) is directly opposed to the beneficiaries' interest (receiving as much as possible).
This does not mean it is impossible. A trustee who wants to purchase trust property must: obtain a professional independent appraisal establishing fair market value, disclose the proposed transaction in writing to all beneficiaries and give them a reasonable opportunity to object, offer to pay full fair market value with no favorable terms, and obtain court approval or beneficiary consent documented in writing.
The safest approach is to treat the transaction exactly as you would a third-party sale: list the property on the open market, allow the trustee to submit an offer alongside other buyers, and sell to the highest bidder. If the trustee submits the highest offer at fair market value, they can purchase. This process is demonstrably arm's-length and is difficult to challenge.
Trustees who purchase trust property without following these procedures expose themselves to significant liability. Beneficiaries can sue to void the sale, recover the difference between the purchase price and fair market value, and seek removal of the trustee. In egregious cases, punitive damages may be available. The documentation and procedural requirements are not optional, they are the trustee's protection.
If you are a trustee who wants to purchase trust property, consult a California estate attorney before taking any action. The legal consequences of getting this wrong are severe and long-lasting.
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