Under the trust and third-party self-dealing, a purchaser who knows the trustee is self-dealing is not a bona fide purchaser.

Under the trust and third-party self-dealing, a purchaser who knows the trustee is self-dealing is not a bona fide purchaser.

• A. The third party is a bona fide purchaser regardless of knowledge
• B. The third party is not a bona fide purchaser if the buyer knows the trustee is self-dealing
• C. The third party is always a bona fide purchaser if they pay fair value
• D. The third party can never be liable for the transaction

Answer: (B)

The key idea is that bona fide purchaser protection depends on the purchaser’s lack of knowledge about the trustee’s self-dealing. A third party who buys trust property for value and in good faith can sometimes keep the property free of the trust if they have no notice of the trustee’s breach. But once the buyer actually knows the trustee is self-dealing, that protective status falls away—the buyer is not acting in innocence, so the trust beneficiaries can set aside the transaction or seek recovery. So, if the buyer knows the trustee is self-dealing, they do not qualify as a bona fide purchaser. Paying fair value does not rescue them when there is actual knowledge of the conflict. The other statements gloss over the knowledge requirement: they either claim protection regardless of knowledge, or claim protection in all value-paid cases, or suggest the buyer can never be liable. None of those fit when there is awareness of the self-dealing.

The key idea is that bona fide purchaser protection depends on the purchaser’s lack of knowledge about the trustee’s self-dealing. A third party who buys trust property for value and in good faith can sometimes keep the property free of the trust if they have no notice of the trustee’s breach. But once the buyer actually knows the trustee is self-dealing, that protective status falls away—the buyer is not acting in innocence, so the trust beneficiaries can set aside the transaction or seek recovery.

So, if the buyer knows the trustee is self-dealing, they do not qualify as a bona fide purchaser. Paying fair value does not rescue them when there is actual knowledge of the conflict. The other statements gloss over the knowledge requirement: they either claim protection regardless of knowledge, or claim protection in all value-paid cases, or suggest the buyer can never be liable. None of those fit when there is awareness of the self-dealing.