Trustee buying trust assets from a beneficiary

[Eiram]

Jurisdiction

New Jersey

I inherited a trust that pays income from my father with my sister as a trustee. The trust assets are rental properties however my sister is not giving me the income I should receive. Because of various expenses to run the business plus her huge salary. She said she can buy me out at less than fair market value. Because she would be doing me a favour. I would think that this would be a complete conflict of interest because of her fiduciary duties. I would think that (unless I agree in writing which I will not) she as a trustee would only be able to buy me out at fair market value of trust assets. Am I correct in assuming this?

 

[Tax Counsel]

I would think that (unless I agree in writing which I will not) she as a trustee would only be able to buy me out at fair market value of trust assets. Am I correct in assuming this?

Yes

 

[adjusterjack]

my sister is not giving me the income I should receive.

Turn a lawyer loose on her.

 

[zddoodah]

She said she can buy me out at less than fair market value.

That doesn't make much sense. There isn't likely to be a "fair market value" for a beneficiary's interest in a trust because there isn't likely to be a market for such a thing.

I would think that (unless I agree in writing which I will not) she as a trustee would only be able to buy me out at fair market value of trust assets. Am I correct in assuming this?

She can't buy you out at any price unless you agree (unless the trust instrument says otherwise).

Is that really the question you intended to ask? Obviously, if you're unhappy about how your sister/trustee is administering the trust, you should consult with a local attorney for a review of the situation and advice.

 

[Eiram]

That doesn't make much sense. There isn't likely to be a "fair market value" for a beneficiary's interest in a trust because there isn't likely to be a market for such a thing.



She can't buy you out at any price unless you agree (unless the trust instrument says otherwise).

Is that really the question you intended to ask? Obviously, if you're unhappy about how your sister/trustee is administering the trust, you should consult with a local attorney for a review of the situation and advice.

Thank you for the reply (and to all those who previously repied)

The trust instrument says I am to receive income once a year at a minimum. My share of the apartment buildings was put in trust by my father to avoid me forcing a buyout (since I don't live in the country) . This is the family business where my sister works and after my father passed away my sister still works there. and because rental property has so many expenses and my sister's salary is high, she hasn't paid income because very little there and she kept it in the business. and there are always excuses and because she knows this isn't benefiting me, she offered to buy me out at a reduced price. With the guise of doing me a favour. I just feel this is wrong on so many levels. She will have an asset that she can sell later on at the fair market price while I lose out completely. and really I want to force her to pay me my fair income. and as a trustee I would think she should know that if this isn't working, she needs to buy me out at fair market value . I think this explains the situation better.

 

[retic]

From my understanding of how trusts work she would not be buying "you" out, she would be purchasing the property from the trust so the trust gets the money. What does she plan to do with the proceeds from the sale that would now belong to the trust?

If the property is to be sold she should at least hire a realtor and bid against other purchasers. Real estate is hot in the US right now and bidding wars are common.

 

[Eiram]

From my understanding of how trusts work she would not be buying "you" out, she would be purchasing the property from the trust so the trust gets the money. What does she plan to do with the proceeds from the sale that would now belong to the trust?

If the property is to be sold she should at least hire a realtor and bid against other purchasers. Real estate is hot in the US right now and bidding wars are common.

That is interesting. My understanding was she was buying my share (remember this is a family business we inherited 50% each, my share in trust with sister named as trustee, her share is not in trust but probably in shares since the business is a corporation (S Corp). So she would buy my 50% share (at less than fair market value citing this is doing me a favour) and then become the full owner of the business. and I am no longer involved. So she would have all the shares.

 

[zddoodah]

she offered to buy me out at a reduced price. With the guise of doing me a favour. I just feel this is wrong on so many levels.

This follow up post doesn't really add anything to what you told us in the original post (except that we now know you're not in the U.S.). Here are your options:

1. Continue to do nothing and hope that, one day, you start receiving income.
2. Accept your sister's buy-out offer.
3. Retain an attorney to scrutinize what your sister is doing and, if appropriate, take legal action against her.

Simply complaining won't be of any benefit to you.

I want to force her to pay me my fair income.

Then pursue option #3 above.

if this isn't working, she needs to buy me out at fair market value .

I've already told you that there is no market for your beneficiary interest in the trust, so there is no "fair market value."

remember this is a family business we inherited 50% each, my share in trust with sister named as trustee, her share is not in trust but probably in shares since the business is a corporation (S Corp).

I your "share" is in a trust, then you didn't "inherit" anything. It sounds like your sister owns 50% of the corporate shares and a trust owns the other 50%. If, in fact, your sister is proposing to buy the other 50% of the shares, she would be buying them from the trust, not from you (although, as a practical matter, that may be a distinction without a difference since you'd need to sign off on the transaction either way).

 

[retic]

So the trust doesn't own real-estate. The trust owns shares of a corporation that owns rental property.

Tell your sister to hire a forensic accountant to appraise the S-Corp if she wants to buy the shares the trust owns.

 

[adjusterjack]

she would be buying them from the trust, not from you (although, as a practical matter, that may be a distinction without a difference since you'd need to sign off on the transaction either way).

Any reason that the sister can't just pay the brother in exchange for the brother disclaiming his interest in the trust and signing a deed conveying any interest in the property to his sister?

Tell your sister to hire a forensic accountant to appraise the S-Corp if she wants to buy the shares the trust owns.

Sure. And when the sister says "No, I'm not gonna do that," then what?

 

[welkin]

The trust assets are rental properties however my sister is not giving me the income I should receive

The income from the properties may exceed the value of the trust assets over time.

Go consult with a probate attorney and possible remove your sister as the trustee.

 

[zddoodah]

she would be buying them from the trust, not from you (although, as a practical matter, that may be a distinction without a difference since you'd need to sign off on the transaction either way).

Any reason that the sister can't just pay the brother in exchange for the brother disclaiming his interest in the trust and signing a deed conveying any interest in the property to his sister?

Who is "the brother"? Do you mean the OP?

As you know, the OP could sign all the deeds he/she wants, but it does not appear that he/she owns any interest in the real property. Rather, it sounds like the real property is owned by a corporation. It sounds like the OP's sister owns 100% of the shares of the corporation but holds 50% of the shares in trust for the OP. Could the OP's sister pay the OP to disclaim the OP's beneficiary interest in the trust? Absolutely.

The issue is valuing that interest, and the OP is referring to "fair market value," which doesn't make sense because there is no market for his/her beneficiary interest. It may be that the fair value of the OP's beneficiary interest approximates 50% of the fair market value of the real property (which appears to be what the OP wants to receive). However, because of how this is structured, it's impossible to know that for sure. Among other things, we know nothing about what liabilities the corporation that owns the real property may have.

Moreover, the OP's statement that he/she "really [wants] to force [the OP's sister] to pay [the OP his/her] fair income" suggests that being bought out is not the result the OP is looking for. This takes me back to the three options I mentioned previously (and, specifically, the third option).