The King Foundation controversy is just one of a recent spate of high-profile financial scandals involving family foundation officers. While these misdeeds have spurred law enforcement agencies to increase their scrutiny of private charitable trusts, many benefactors are asking themselves—and answering uncomfortable questions about—how these types of organizations compensate their trustees.

Several months after the King Foundation ruling, Paul C. Cabot Jr., the scion of one of New England’s most revered families, agreed to repay more than $4 million to the Paul and Virginia Cabot Charitable Trust, established by his parents, as part of a deal with the Massachusetts Attorney General’s office. Cabot allegedly paid himself a million-dollar-plus salary from foundation funds to support a lavish lifestyle.

While the Cabot and King cases may seem exceptional, law enforcement officials across the country have put foundations on notice: They promise to monitor the activities of trustees more closely. “There is increased scrutiny federally, and by many states,” says Jamie W. Katz, chief of the Massachusetts Attorney General’s Public Charities Division, which investigated the Cabot case. “We are pushing very hard to bring charity compensation issues to the forefront.”

Katz and his counterparts are particularly leery of a practice known as self-dealing, in which foundation trustees collect excessive salaries or fees from funds that were intended for charitable purposes. “Self- dealing is clearly the third rail that family trusts need to avoid,” says Dorothy Ridings, president and CEO of the Council on Foundations, an association of grant-making foundations in Washington, D.C. “It can be a problem with all foundations, but families have a special situation.”

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.”