Chapter 20 - § 20.4 • SELF-DEALING

• Jurisdiction: Colorado

§ 20.4 • SELF-DEALING

The Uniform Trusts Act § 5 says with regard to a trustee, corporate or individual: "No trustee shall directly or indirectly buy or sell any property for the trust from or to itself or an affiliate; or from or to a director, officer, or employee of such trustee or of an affiliate; or from or to a relative, employer, partner, or other business associate."² The general rule is that a sale of estate property to the representative or a relative of his or hers, without the consent of the beneficiaries after full disclosure, can be set aside, even though the sale price is fair and even though the sale is at public auction.³ Under the Uniform Probate Code, transactions involving self-dealing are void. Under C.R.S. § 15-12-713, however, the transaction is voidable. Such transactions are permissible if authorized by the governing document or ordered by the court following notice. C.R.S. § 15-12-713.

Absent authorization in the governing instrument or court order, the representative should not make a sale to a corporation in which he or she is interested, and if a corporate fiduciary, it should not sell to any of its departments, an affiliate, a director, officer, or employee, or their relatives or affiliates.⁴ The sale to the estate of property belonging to the representative or property in which he or she has such an interest as to affect his or her judgment regarding it likewise is prohibited.⁵ If acting as fiduciary for two different entities and the sale by one to the other is fair, it will not be set aside.⁶ The representative cannot use trust property for his or her own purposes.⁷

The representative may lend his or her own money to the estate and the court may allow interest, if it can be shown that the loan was necessary.⁸ He or she must not in any way compete with the estate or buy for himself or herself what he or she should buy for the estate.⁹ The representative is not entitled to make any profit out of the estate except for reasonable compensation under the statute. Murray v. Stuart, 247 P. 187 (Colo. 1926). A representative in the brokerage business cannot keep his or her share of the commissions on business done with the estate, nor can a representative or the representative's attorney keep a commission on a mortgage loan paid by the borrower (CBA Ethics Comm., Formal Op. 26) or a commission paid by the insurer to an insurance agent on an executor's bond bought by the estate, whether or not the estate is depleted by the...