In the King and Cabot cases, no one questioned that the fees paid to certain trustees were excessive. In many situations, however, the line between right and wrong is not clearly drawn. “Let’s say I’m in the real estate business, and I have some rental properties,” Ridings says. “I can offer my family foundation space in one of my buildings, but if I receive rent, is that self-dealing? When there is some benefit that comes to me by virtue of my being a trustee of the foundation, where does it cross the line into lining my own pockets? It can be a slippery slope.”

Foundation grantors and executives often exacerbate their self-dealing situations simply because they are ignorant of the rules and regulations that govern charitable trusts. “The first thing families have to understand is that once they create a charitable foundation, the money is no longer theirs to use as they see fit,” Katz explains. “They are entitled to reasonable compensation, but they don’t have any right to simply take what they want.”

The IRS, which oversees charitable organizations, and state attorneys general who hope to clamp down on questionable compensation practices at family trusts, will have their work cut out for them. “The foundation world is different from other kinds of public charities,” Katz says. “It is more obscure to us because we don’t see many instances of employees reporting problems. Typically, those reports come from just a few insiders and family members.”

Still, trustees and officers serving charitable foundations would be wise to review their compensation policies. They should avoid the temptation to assume they know how monies can be used legally and appropriately, Katz advises. “If you are a fiduciary, you have a legal fiduciary duty to the funds. If you allow them to be misspent, you could be liable.”