In theEstate of Jerome Silverstein, 827NYS2d 50,a case before the New York State Supreme Court’s First Appellate Division, it was held that trustees breached their fiduciary responsibility of loyalty by allowing immediate family members to occupy trust property at no rent or for rent far below fair market value.
A trustee has an obligation to obtain see to it that those occupying real estate owned by the trust pay fair market value for its rent. In this matter, a court-appointed referee determined that this had not been done and surcharged the trustees for failing to satisfactorily explain some $129,000 in various expenses . Originally, the trustee also surcharged the trustees for the fair market value of the rent of property occupied by a family member of but the petitioner withdrew her objections to the below market rental, thereby leading the court to set that part of the referee’s finding aside.
It is important to keep in mind that trust and estate property cannot be used as if it were one’s own. Frequently,a home is shared by two relatives for years . Upon the death of one of these co-tenants in common, the survivor goes on living in the entire property without making a contribution for the fair market value of the rent for the decedent’s portion of the property which has not been offset by the carrying costs. The longer this situation is allowed to continue, the more it may prejudice the rights of the survivors of the deceased co-tenant who are not only deprived of the value of their share of the rent which the property should be producing but also lose out on not having the cash from the sale of the residence.
An executor or trustee controlling such a property needs to be aware that he or she may ultimately pay the price for failing to protect the financial interests of the beneficiaries who are not in possession of the property and do not live there. This familiar situation often leads to bitter feuds within a family, not to mention claims for breach of fiduciary responsibility which may have serious financial implications . It is important for attorneys to determine if the executors and trustees they represent are involved in a situation where fair market rent is not being collected for property owned by the estate or trust. It is equally important that family members who find themselves as fiduciaries do not fall into the potentially very costly trap of allowing property to be used in this manner