Q: Can a successor trustee legally purchase real estate using trust funds if the grantor is still living?

A: The most important question is: Does the grantor have a Durable Power of Attorney, signed prior to the dementia, or a court order creating a conservatorship for the Grantor? If there is a signed Durable Power of Attorney, the person who singed the DPOA becomes the attorney-in-fact for the Principal (the Grantor). If there is only one named Trustee on the Trust, he can make the decisions, depending on the terms of the Trust on behalf of the Grantor. However, those decisions must be for the benefit of the Grantor, and not for himself. I believe that morally, if not legally, the Trustee cannot spend Trust monies unless it benefits the Grantor. I think the other three beneficiaries should object to this action, unless the Trustee can justify the expense.

A: Hello. I am assuming that the successor trustee is NOW installed as the trustee and the grandma with dimentia has resigned or has been removed from the position of trustee. The answer to what the successor trustee can do depends in part on what the language of the trust says. A trust is a set of detailed instructions to the trustee and to all successor trustees. There is most likely a section of the trust that lists out trustee powers and prohibitions. A typical trust is likely to give the trustee the right to buy and sell real estate. However you have to look at the trust here to see what is says about real estate.

Even if the trust you are dealing with here does allow the purchase and sale of real estate by the trust, the CA probate code has laws dealing with the fiduciary responsibilities of trustees. A trustee would be limited by the probate code to make sure the vacation/rental property is actually a good investment. What is the likely rental income and what is the likely appreciation? Would there be positive cash flow and how would the amount of cash flow compare to other possible uses of the money? Does the trustee plan to use this vacation house for his own personal use and if so will he be paying fair rental value for the days used? What other alternatives are there for investment of trust funds. Again, that may depend upon how much money there is to invest.

Thus, the purchase of a vacation/rental property may be legal depending upon the above factors but he runs the risk of being sued later on by the beneficiaries if it turns out to be a bad investments.

Most likely the trustee does not have to obtain the permission of the other beneficiaries to make any investments including this one. That is the nature of being trustee. The trustee is appointed to run the trust and the beneficiaries have no legal say or veto power or input over trust investments, unless the trust language requires beneficiary consultation or consent. Usually trusts do not require beneficiary consultation or consent.

The fact that the grandmother who is the trustor and former trustee now has dimentia, wouldn't affect what her successor trustee does. A possible exception would be if the successor trustee took over the trust and got the grandmother to resign under undue influence.

I suggest that if the successor trustee is trying to do something that is not proper that the beneficiaries complain in writing and keep copies of their letters. Don't just complain by email as emails may be harder to prove in court. Better yet, the beneficiaries should consider hiring a lawyer to write a strong warning letter. Lawyer letters tend to have more impact and a lawyer might be able to think of more things to complain about after reviewing the entire situation.

David L. Crockett, attorney, CPA, Broker