Szarek v. Szarek: Beware the Self-Dealing Trustee
The recent decision in Szarek v. Szarek involved a dispute between two brothers who were the residual beneficiaries to their other brother’s estate. One brother was also the estate trustee. The deceased brother owned shares with a date of death value of $58,076. The estate trustee transferred the shares to his personal trading account in October 2001, at which point they were worth $34,140. The estate trustee never paid for the shares. The estate trustee then sold the shares in November 2006 for $129,000 and, after paying the associated capital gains tax, was left with $112,687. A dispute arose over who owned the shares. The estate trustee took the position that he acquired them when he transferred them into his personal account and that he had always intended to pay for them but had not because of pending litigation. The estate trustee was agreeable to paying the other residual beneficiary half the proceeds, however wanted to rely on their value in October 2001. The residual beneficiary’s view was that the shares remained an estate asset until they were sold in November 2006. The court sided with the residual beneficiary and found two main flaws in the estate trustee’s position: (1) he never paid for the shares; and (2) it was a self-dealing transaction, meaning he either required court approval or the consent of the beneficiaries - he had neither. The court found the shares were held in trust for the estate until they were sold and the estate was entitled to the full amount, less the tax that had been paid. Have a great day! Megan F. Connolly
