When someone becomes a successor trustee, they gain substantial power over a trust and its assets. Unfortunately, for some trustees, the temptation to use trust assets for their own benefit is too great. When they do, it can have enormous consequences on your inheritance, the trust, and the legacy your loved one left behind. One common way trustees exploit their position is through a misappropriation of funds. Luckily, you have the right to defend yourself against this offense, but how can you identify this transgression?
Working with a professional trust accountant to review a trust accounting and identify telltale signs of this offense is essential for beneficiaries to take legal action in a court of law and for lawyers to prove this transgression occurred. Read on to learn more.
Related Article: What is the Penalty for an Inaccurate Trust Accounting?
What is a Misappropriation of Funds?
Misappropriation of funds refers to a situation in which the trustee uses trust funds for an unauthorized purpose, often for their gain and without the approval of the beneficiaries.
Trustees have a legal obligation to uphold several responsibilities called fiduciary duties. Misappropriation of trust funds is a violation of two general duties:
- The duty to use reasonable care in discharging their duties (i.e., the obligation to remain informed, use due diligence, and avoid negligence.)
- The duty of loyalty (i.e., avoiding conflicts of interest and not putting their interests before those of the trust or beneficiaries.)
When trustees breach these duties, they can face removal and legal repercussions and be held personally liable. Depending on the severity, this breach could be criminal.
A trust accounting is the first place you can look to determine if a breach of duty occurred, including a misappropriation of trust funds.
Related Article: How Do You Know if a Trust Accounting is Accurate?
How Can a Trust Accounting Uncover a Misappropriation of Funds?
First and foremost, if you feel that a misappropriation of funds has occurred, it is essential to request a trust accounting.
An accounting is a detailed description of all assets and transactions pertaining to a trust and your litmus test to determine if a trustee is fulfilling their fiduciary duty. You can request an accounting by sending a letter or email. A trustee has 60 days to respond.
If a trustee refuses to provide one, this is a serious red flag, and contacting an attorney is essential to compel them in probate court to provide one. After receiving this document, a trust accountant can review it and identify signs that this breach of duty occurred.
A trust accountant will review the accounting, bank records, and other financial documents in detail to look for signs like transactions that don’t add up, inexplicable bounced checks, suspicious transactions that could benefit the trustee, and more.
Typical warning signs to look out for include:
- Paying themselves an inflated fee to perform their duties
- Skimming money off the top of bank accounts
- Failing to deposit trust funds into a trust account
- Commingling personal assets with trust assets
- Transferring trust assets to related accounts
- Paying expenses unrelated to a trust with trust assets
- Making distributions that result in overdrafts
- Loaning money to themselves or their friends
- Removing an asset from the list of trust assets and keeping it for themselves
- Substituting other assets worth less for more valuable trust assets
- Receiving a kickback when they pay for their services
- Using assets for anything the trust does not permit
- Stealing trust property
“A misappropriation doesn’t have to be malicious. Even something like borrowing money could constitute misappropriation because it could deprive beneficiaries of money by minimizing the return earned through investments. Trust accounting is an invaluable legal tool that can even help you subpoena bank records directly from the bank to prove this breach of duty occurred.”
– Marcia L. Campbell, CPA
Ultimately, probate law is incredibly complex, and interpreting these financial documents to determine if a violation occurred requires the expertise of a trust accountant and attorney.
Related Article: How Do You Validate a Trust Accounting for a Trust Litigation Attorney?
Has a Trustee Violated their Fiduciary Duty? A Trust Accounting Is Your Greatest Weapon!
Whether you’re a trust litigation attorney who needs a seasoned eye to review a trust accounting as an expert witness or a beneficiary who suspects a trustee is abusing their station, it is essential to bring in a professional to protect your inheritance and preserve the integrity of a trust in the event of a misappropriation of funds. If a trustee jeopardized your inheritance and the trust by stealing from it, we can identify this offense and provide evidence to force them to pay it back to the trust and possibly pay a surcharge.
Visit our Contact Page to schedule a consultation if you need an expert eye to review a trust accounting or provide expert witness testimony!
