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Who Can be a Trustee

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No direct legal reason. Whether it is a good idea or not would depend on a number of factors. It would be unusual, I think. For one thing, if the sale was for an installment note, or if there are issues down the line regarding indemnities, etc. with respect to the acquisition, there could be a conflict that would prevent the trustee from enforcing the ESOP's rights. Could even be a prohibited transaction. Again, depending on facts and circumstances, the plan sponsor's selection of the individual to be trustee, if there were inhibitions on the individual's being able to fully represent the trust, could be a breach of its ERISA fiduciary duty of appointment.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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I'd advise against it.  ESOP's are not for mom & pops usually so I'm surprised there was no trustee who oversaw the sale; no board in place or the new owners that feel this may be an overreach by the old owners.  Who hired the valuation firm?  If there was a discretionary trustee for the sale, that's the likely trustee who should be hired as the directed trustee.  The sale is already suspicious if no trustee oversaw the sale, then to let the old owner act as trustee, you're asking for a lawsuit!  Just negotiate a fee with a bona fide ESOP trustee, one who knows the ESOP community and the ESOP rules and can advise the board.  The former seller (only if they have an installment note) should be on the board, chairman is okay, but that's it.  You need formality formality and formality now or the DOL will be calling on you.  In fact, the DOL will know when you don't have an outside trustee and will be calling.  Be prepared for a real ESOP Trustee to walk away from taking you on if this was a suspicious sale.  Then go to your banker and see if they'll do it.  Good Luck!

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