Catching a Fraudulent Trustee in the Act Can Be Tricky
Those who know how to manipulate numbers and practice financial fraud actually find it easy to fool others who don't have an in-depth comprehension of accounting and finance. Let's take a closer look at how this happens.
Setting the Stage
In a previous article, "Breach of Fiduciary Duty," we explained that 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." However, malfeasance is unfortunately somewhat common when family members are put in charge as trustees of relatively large estates, especially in terms of unjust appropriation of property (i.e., real estate, cash, stocks/bonds, personal property, etc.) from a trust.
When accounting and finance are not areas of personal strength for certain beneficiaries, it is easier for a trustee to get away with it. Or the trustee might play the "just trust me, I'm doing what's right for everyone" song, and it's easier for beneficiaries to go with the flow and not disrupt family dynamics. These are all-too-common scenarios that unfortunately get played out time-and-again.
Sometimes beneficiaries get a sneaky suspicion that "something just doesn't smell right" and start asking questions. They might talk to a trusted friend to see if their concerns are justified, or approach other beneficiaries to see if they feel the same way. Again, the family undercurrents can play a huge role in this process, because the unethical trustee knows that everyone is dealing with a lot of stress and are just trying to get along, especially in the midst of the recent loss of the trustor.
Why would a trustee essentially steal from the family? Typically, the driving force is money (they are hurting for funds), or may feel that they deserve more or others do not, or perhaps there is long-seated jealousy or envy.
Whatever the cause, in such situations trust beneficiaries may find it necessary to sue a trustee if they believe their inheritance is being mismanaged or improperly disbursed, since the key issue of trust has been breached - they can no longer believe that the trustee is acting in a fiduciary capacity for all beneficiaries.
Real-World Examples
Take a look at the list of examples below and ask yourself "Is that happening to me?" If yes, it is likely time to talk with an attorney about possible litigation.
- Difficulty obtaining financial information from the trustee - Is the trustee reluctant to respond to your reasonable requests? Does he/she seem to be hiding something? Are there delays or incomplete information provided?
- Providing written account of all financial transactions - The trustee is actually required by state law to provide full accounting, but since most beneficiaries don't know this and usually rely on the trustee to do what is right, the trustee often is not asked to provide full accounting. If asked, the trustee might give partial information or try to avoid putting anything in writing.
- Suspicion of fraud/embezzlement of trust assets - Embezzlement is a form of fraud in which a person intentionally misappropriates assets for personal use. When it is suspected, professionals use investigative techniques to catch the perpetrator, including: reconciling bank accounts; examining processed checks, payments, and direct deposits; tracking electronic transfers and payments; tracing schemes that move money through third parties; and detecting vendor kickbacks or identifying fictitious vendors. This might seem very sophisticated - and it is, since such elaborate schemes can be hatched when large sums of money are involved.
- Misuse of trust funds, such as personal expenses - This can be difficult to catch, especially if the trustee practices any of the examples above. But even if the trustee is providing proper documentation, he/she can be abusing the position, such as lavish meals and hotel bills, unwarranted travel expenses, or paying for other people to help with the trust who actually have not offered any services that benefit the trust.
- Inappropriate trustee fees - The trust documentation should normally include a stipulation for trustee fees, which are typically a small percentage of the total trust assets. If the trustee wants or automatically takes more, it should be addressed.
- Incorrect distribution of trust assets/proceeds - A beneficiary typically expects to receive a certain amount or share of a trust, especially when it is clearly laid out in the trust documents. The trustee is responsible for clearly demonstrating that the trust proceeds have been distributed exactly as the trustor intended. Sometimes a trustee handles distribution in a "I'm doing what I think is right" manner or even maliciously trying to steer proceeds incorrectly; regardless, if the end result is incorrect, it should be contested.
Decades of Trust Litigation Expertise
If you have concerns about your trust, 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. Our website is https://www.ocestateplanning.net.