Advise a beneficiary whether a trustee's purchase of trust property can be undone. You have 60 minutes. To: Associate. Use the File and the Library only, then compare your draft with the rubric and the model answer below.
The assignment
To: Associate. From: Christian Lund, Partner. Re: Ferreira, trust. Our client, Maya Ferreira, is a beneficiary of a family trust. The trustee, her uncle Paul Ferreira, sold a trust-owned cabin to himself for $210,000, and she believes it was worth more. Please draft a plain-language letter to Ms. Ferreira explaining whether the sale can be set aside, what she needs to show, and what remedies exist. Use only the Library and do not promise a result.
File
Client interview
The trust was created by Ms. Ferreira's grandmother. It names Ms. Ferreira and her brother as equal beneficiaries and Paul Ferreira as trustee. The trust owned a lake cabin. In April, Paul told the beneficiaries he was selling the cabin to 'a buyer.' The buyer turned out to be Paul himself, at $210,000, with no appraisal and no advertising. Ms. Ferreira learned of it in July from the county deed record. A realtor told her the cabin is worth about $290,000. The trust instrument says the trustee may sell property 'at private sale for any price the trustee thinks fair.' It does not say the trustee may buy from the trust. Neither beneficiary consented.
Trust instrument excerpt
The Trustee may sell any trust property at private sale for any price the Trustee thinks fair, and shall not be liable for any act done in good faith.
Library
Trust Code, section 7-505 (Franklin)
A sale or other transaction involving trust property in which the trustee has a personal interest is voidable by a beneficiary unless (a) the trust instrument specifically authorized it, (b) the court approved it in advance, or (c) all beneficiaries consented after full disclosure. A beneficiary may seek to have the transaction set aside, or may accept it and recover any profit. A beneficiary must act within two years after learning of the transaction.
In re Estate of Carrow, 41 Fr.3d 305 (Fr. Sup. Ct. 2012)
A trustee sold trust land to himself at a fair price under a clause allowing him to sell 'for any price he thinks fair.' Held: voidable. A general power to sell does not authorize a sale to the trustee, and the duty of loyalty forbids self-dealing even if the price is fair and the trustee acts in good faith. The beneficiary need not prove that the price was unfair. The trustee bears the burden of showing that the transaction was authorized.
Doyle v. Marchetti, 47 Fr.3d 152 (Fr. Ct. App. 2016)
A beneficiary sued after a trustee sold trust property to himself and then resold it at a profit. Held: the beneficiary could recover the trustee's profit, and a court may order the trustee to reconvey the property if it remains in his hands. Where the property has been transferred to a good-faith buyer, the beneficiary is limited to money damages, including the difference between the value and price.
What graders look for in this task
Graders score a response against these criteria, and every one of them depends on using only the facts in the File and only the rules in the Library, so treat the list as a check for your draft after the first pass and again before you stop writing.
Writes in plain language addressed to Ms. Ferreira
Explains that a sale by a trustee to himself is voidable under section 7-505 unless authorized, approved, or consented to
Applies Carrow: the general sale clause does not authorize self-dealing
Explains the burden is on the trustee and that fairness of price is not a defense
Explains remedies from Doyle: reconveyance or profit or difference in value
Notes the two-year deadline and that she learned in July
Notes the good-faith clause does not protect the trustee here
Gives no promise and asks for documents such as an appraisal