Typically, beneficiaries approach the administration of a trust with optimism and belief that the trustee will fairly and adequately perform their required duties. Unfortunately, that doesn’t always happen. Questions may regarding what were the trustor’s wishes and desires (the person who created the trust), as opposed to the trustee’s supplanted wishes and desires. To that end, a trustee may manipulate documents or refuse to provide documents, which if uncovered, would serve to prove malfeasance.
Do you have suspicions that documents provided by the trustee are untrustworthy? Are some documents missing or possibly altered? If confirmed, such actions are likely due to a “breach of trust” violation.
In a previous article, “Breach of Fiduciary Duty,” we discussed key duties of a trustee, such as loyalty, no self-dealing, impartiality, disclosure, etc. A trustee "is required to act in the highest good faith towards his/her beneficiary and may not obtain any advantage by the slightest misrepresentation. Concealment, threat, or adverse pressure of any kind is unlawful as long as the fiduciary relationship exists," and any violation of these duties constitutes a wrong against the beneficiaries.
Examples of Shady Documentation
Let’s look at a few real-world examples and red flags of “shady documentation.” Recognizing these signs might help you to determine whether to seek legal counsel to protect your interests. Typically, these examples involve a family member or friend trustee, as opposed to a private professional.
- Destruction of trust documents: Did your parent tell you that they intended to change the trust, but curiously the proposed changes were never found after death? Or did a sibling receive an allocation that seems very peculiar, given all previous discussions with your parents (such as “We’re giving the house to both of you to split equally” but then the trust amendment says your brother gets it all)?
There have been cases when a trustee knowingly destroyed documents, such as a key amendment, typically because he/she did not like the correct terms and conditions. Obviously in these cases, the trustee hopes that he/she won’t get caught. If beneficiaries can obtain copies of all amendments and other trust documents at the time of changes, then it can make it easier to catch such illegal trustee behavior.
- Questionable changes or amendments: Was the trust changed to disproportionately benefit one party, without a clear or reasonable explanation? Are there signs that the trustor was influenced or pressured to make such changes? A major red flag is if there are sudden or questionable changes made to a trust, especially if done under suspicious circumstances or in secret. This could include alterations made when the trustor is under duress, not of sound mind, or in poor health.
- Recent case: A condition of a trust that had been in place for over thirty years was completely changed soon before the death of the trustor. Further investigations revealed that there were clear indications of undue influence.
- Lack of transparency by trustee: The trustee should operate with complete transparency to and in the best interest of all beneficiaries. However, sometimes the trustee acts in a manner that indicates deception, for example, misuse of assets for personal gain or inconsistent stories about trust management, or a refusal to provide information about trust assets or expenses, or withholding key documents.
- Recent case: The trustee supposedly gave all of the trust documents to the trust attorney, then asked for an opinion on distribution. The trust attorney, not knowing of the missing documents, gave the opinion – but was later appalled to find out that the trustee had knowingly removed a key document.
- Unfair or unequitable trust distribution. Does the trust adequately represent the interests of all beneficiaries? Are the terms inherently unfair or bias in a manner that is inconsistent with previous documentation (such as previous trust versions or amendments)? Is there available documentation that shows the trustor(s) had intended other dispositions in the trust?
- Does the trustee want to change the trust, saying it doesn’t reflect verbal instructions? In a recent matter, the trustee colluded with another beneficiary to change the trust; however, their amendment was done incorrectly, and when they realized it too late, they conspired again to say that the amendment did not accurately reflect the desires of the trustor, because of supposed verbal instructions. Their scheme was later uncovered.
- Do documents suddenly appear? As you ask questions of the trustee, do documents mysteriously appear? This could indicate that the trustee is holding on to key documents, perhaps hoping that you don’t know certain conditions exist. Or it could indicate the trustee is fabricating documents.
- Has the trustee hidden or changed certain accounting records? This is actually quite common in trust litigation. For example, sometimes there isn’t cash available for certain estate costs and so all beneficiaries contribute equally until they can get reimbursed later during distributions.
- Recent case: The trustee, who was in league with her sibling (another beneficiary), misrepresented expense contributions by him and said he paid when he did not. A forensic review of accounting records uncovered the malfeasance.
- Are statements for investments missing? Due diligence can sometimes uncover that the trustee has intentionally failed to provide complete statements for investments, in which case it is often done to cover up inappropriate activities.
- Recent case: A trustee cashed out a trust account but didn’t distribute it for several months to the beneficiaries. It wasn’t until a beneficiary asked about it that the trustee gave an explanation; but, not too curiously, refused to provide full documentation. It was clear the trustee had never intended to reveal the account until he was asked about it.
- Are some documents original and others are photocopies? Do some look like they have been altered? In a recent case, it was uncovered that some documents in a set were suspiciously different, which then lead to the conclusion that they were illegally altered. Do certain words or provisions seem to be missing or redacted? Do the fonts differ from the rest of the document(s)? This turned out to be a key fact that led to a favorable settlement for our client.
- Are pages missing? In another recent matter, the trustee submitted several pages of documentation as evidence to support her position. However, when we asked for the remaining pages, the trustee balked and eventually proposed a settlement, clearly because she didn’t want to provide the missing pages.
- Is the trustee on their 2nd or 3rd attorney?
- Recent case: When the trustee’s attorney resigned, the trustee’s explanation was suspicious. Upon further investigation, we found that the attorney had resigned because the trustee was acting for his own interests as a beneficiary, more so that for the beneficiaries as a whole, which was cause for trustee dismissal.
When is litigation necessary in trust disputes?
There seems to be no end to the types of schemes a trustee will implore to benefit themselves. While trusts are typically designed to prevent unnecessary disputes, it doesn’t stop some trustees from trying to achieve illegal gain. When suspicious circumstances surround an amendment of a trust, anyone who has standing (i.e., the trustee, beneficiaries or heirs) can contest the trust’s terms. When disputes cannot be resolved between the trustee and beneficiaries, informally or when contesting the terms of the trust is necessary, litigation is the next step.
If you have concerns about your trust or trustee, our attorneys have the expertise and experience to handle your trust matter skillfully and efficiently. Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form.
Noah B. Herbold, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization) with 20 years experience. His primary focus is assisting clients with litigated matters such as: Trust Contests, Breach of Trust, Fiduciary Appointment and/or Removal, Asset Ownership, Beneficiary Rights, Determination of Heirship, Elder Financial Abuse, Property Disputes, and Conservatorships. Contact Noah at noah@ocestateplanning.net.