Misappropriation of Trust Funds by Trustee

WHAT TO DO IF A TRUSTEE IS MISAPPROPRIATING FROM A TRUST

The misappropriation of trust funds by a trustee holds them personally liable and can be so severe that it can be criminal. Before going down the path to sue the Trustee for breaching their fiduciary duty, a thorough strategic plan should be drawn out to uncover in sequence the probability of where the breach occurred. You will definitely want to consult an attorney, and an attorney who has “trust litigation” experience.

MISAPPROPRIATION OF TRUST ASSETS

Misappropriation of trust assets is when a trustee unlawfully uses them for personal gain without beneficiary consent. This act breaches their fiduciary duty. If such misconduct arises, beneficiaries can petition the probate court for the trustee’s removal.

One way of misappropriation of trust funds, is when the trustee decides to use the assets as a piggy bank, and buys something personally, and then pays it back immediately. A trustee cannot use the estate to enrich themselves. This is a breach of their duty and can get removed.

TRUSTEE TAKING MONEY FROM TRUST

If a trustee is taking money from the trust, i.e., self dealing, then the beneficiaries should get together and protect the trust funds. An experienced trust litigation attorney will protect the trust beneficiaries via probate court. Here at Hess-Verdon & Associates, after 33+ years of trust and estate matters, we can have the trustee held liable based on the accurate records from the financial forensic analysis.

HOW TO REQUEST AN ACCOUNTING OF AN ESTATE

If you believe the Trustee of the family trust has mismanaged funds, assets, etc., you will need to consult an estate planning attorney who focuses primarily on trust and estate litigation. A trust accounting will need to be completed and is integral to the removal of the trustee and perhaps hold them accountable via civil lawsuit and possibly criminal charges.

HERE ARE SOME QUESTIONS THAT A HESS-VERDON ATTORNEY WILL ASK YOU:

1. Do you have a copy of the Trust? Was it received within the last six months?
2. Have you requested bank records, asset valuations? Is everything written and dated?
3. Are there any in Terrorem clauses in the estate plan?
4. When was the Trust created and was there a change of the successor trustee?
5. Was there theft from the estate before inventory?
6. Was the grantor in the right mind when creating a Trust? Was there dementia when the Trust was created?
7. Are you receiving updates from the Trustee and are keeping up with their fiduciary duties?
8. What makes you think there is misappropriation of trust funds?

The above questions are just a few questions a Hess-Verdon attorney will ask to determine trustee family trust embezzlement.

Now, we understand that misappropriating trust funds is especially a trying time for any beneficiary, especially that the grantor has just passed away and now a trustee has no transparency and bad faith.

Here at Hess-Verdon, we help in the trustee removal process by gathering evidence via discovery, etc. When a trustee steals from the the estate, experienced attorneys here at Hess-Verdon & Associates can help.

what happens if a trustee spend the money

Misusing trust funds may result in severe penalties, such as being ordered to reimburse the trust, paying additional surcharges and removal from their position. Any such misappropriations also has adverse repercussions for beneficiaries because their inheritance will be affected directly.

WHAT SHOULD YOU DO TO RECEIVE A PROPER UPDATE ON THE ASSETS IN QUESTION?

If you have not done so, send a letter, email, etc., to the Trustee to be transparent on accounting. There is a time-frame allowed for meeting your beneficiary rights. Typically should give 60 days to respond.

Note: After waiting for a proper update, a review on whether misappropriation of trust funds is applicable. Receiving accounting is the litmus test to see if the Trustee is compliant and living up to their fiduciary duty.

Now, if you are passed all the checks above, and the Trustee is not communicating, you will want to seek counsel. You will want to talk with the counsel you want to remove a trustee involuntarily.

SO WHAT ARE THE GROUNDS YOU SEEK TO REMOVE THE TRUSTEE?

There is a handful of reasons to remove a Trustee from a trust. Some are very obvious, while others are somewhat obscure. An action to remove the Trustee begins with a Petition to Remove Trustee. Your counsel will file the matter with the appropriate court. A carefully prepared case is of the utmost importance.

ARE YOU A BENEFICIARY OF A TRUST AND IN NEED OF COUNSEL?

If you are a beneficiary and are concerned that the trust administration process is compromised, you have the right to legal action. Here as Hess-Verdon, we can discuss your situation, allowing you to understand where you stand and the rights of a beneficiary.

DISPUTES INVOLVING LIVING TRUSTS INCLUDE THE FOLLOWING:

• Trustee fails to make distributions: Under probate code 16000, a trustee has the fiduciary duty to administer the living trust according to the trust instrument. Many times, a trustee has “absolute” discretion over trust distributions. With that said, they should still work within their “Fiduciary principles,” i.e., be fair.

• Claims of breach of fiduciary duty

• Failure to administer the Trust based on the trust document.

• The Trustee is “self-dealing” with the trust assets.

• The Trustee pays themselves an exorbitant compensation.

• Trustee fails to report to the beneficiaries

• Failure to make a timely accounting

• Failure to invest trust assets properly

HOW DO WE CONTEST THE TRUST?

• Get a copy of the trust agreement from the Trustee. Make sure to review all pages and amendments. The Trust should clearly state the responsibilities of the Trustee and how disbursements are managed.

• Verify you have the right to request a report.

• Contact a Hess Verdon experienced trust litigation attorney. Misappropriation of trust funds is a serious breach and probate court may be necessary to finalize the trust and estate litigation matter.

If you, as a beneficiary, find yourself in need of legal counsel, Hess-Verdon & Associates are well versed from the Beneficiary standpoint. Call 1-888-318-4430 to discuss the evidence you have gathered and the trustee misappropriation.

Frequently Asked Questions

Trustee are bound by legal and ethical obligations to manage trusts responsibly and in the best interests of beneficiaries, yet in certain instances trustees may fail to fulfill their responsibilities. Here’s how these cases should be managed:

Can a trustee of a trust steal money?

Although trustees are legally required to manage trust assets responsibly, it is still possible for one of them to misappropriate or steal from it, breaking fiduciary duty and breaking the law. In such a scenario, legal action can be brought against them for violating fiduciary duty and they could face sanctions such as being made liable in court with possible additional damages being assessed on their accounts.

What constitutes trustee misconduct?

Mismanaging trust assets, investing recklessly or engaging in self-dealing practices; not complying with terms of the trust document; failing to distribute assets according to trust agreements; providing false or misleading information regarding finances pertaining to trust. These actions all can constitute trustee misconduct and can have serious repercussions for all beneficiaries involved.

What is Trustee Abuse?

Trustee abuse refers to any action by a trustee which harms either the trust itself, its beneficiaries, or benefits the trustee directly at the expense of the trust itself. Examples may include using trust funds for personal expenses; making decisions that favor themselves over beneficiaries; or failing to adequately invest and secure trust assets.

How Can Trustees be Held Accountable?

Trustee accountability can be enforced through several mechanisms.

Legal Action by Beneficiaries: Beneficiaries may file suit against their trustee for breaches of fiduciary duties.

Court Intervention: A court can order a trustee to make restitution, return stolen funds or compensate the trust for losses due to negligence. Alternatively, they can remove an incumbent trustee and appoint new ones.

Accounting and audits: Trustees are often required to present regular accountings to beneficiaries, which may be audited.Regulatory oversight: In certain jurisdictions, trusts fall under specific regulatory frameworks which provide additional oversight of them.

If beneficiaries suspect their trustee is failing in his or her duties, they should contact a legal expert specializing in trust and estate law for advice about potential remedies and enforcement measures.