The key to any fiduciary relationship (such as being a Trustee, Executor, Conservator, Agent, etc.) is to avoid conflicts of interest. A fiduciary is supposed to do the right thing in all situations. And that cannot be accomplished if the fiduciary is taking advantage of his situation.
For example, if a Trustee is buying an asset from the Trust he is managing, that is an inherent conflict of interest. No one has the ability to be truly unbiased in that situation. As a result, any dealing between the Trust and its Trustee is considered an automatic breach of Trust under California law.
Fiduciaries have an affirmative duty in California to avoid any situation that would put them in a conflict of interest. That means they must take the initiative to avoid these situations in the first place.
Let’s say the Trustee owns his own construction company. Can he hire his company to work on Trust property? No. That situation must be avoided.
If a Trustee is also an accountant, can he hire his own accounting firm to do work for the Trust? No.
You get the idea. There are two primary exceptions to this rule. First, if the Trust document allows the conflict to occur. Many Trusts will allow a Trustee who is a CPA to use their own firm to do tax or accounting work for the Trust. The Settlor may have seen that as a benefit and wants to allow it.
Second, if the action is either approved by all beneficiaries beforehand or authorized by the Court, then it can occur. Thus, a Trustee can use his own construction company if all the beneficiaries consent (preferably in writing), or the Court authorizes it beforehand.
In other words, someone other than the Trustee must approve a conflict of interest situation. Absent such approval, the conflict must be avoided.