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What Happens If a Trustee Steals From the Trust?

What Happens If a Trustee Steals From the Trust?

When a person, known as the trustor, establishes a trust, they select a trustee or trustees to manage that trust. While they are still living, the trustor can name themselves as the trustee and list a co-trustee who will become the trustee in the event of their death. Of course, the person named as the trustee is someone who should be trustworthy, as they’re expected to fulfill the terms of the trust and act in the best interest of its beneficiaries.

Unfortunately, trustees are sometimes tempted to use their power to take advantage of a trust for themselves. Trustees who steal from a trust can face criminal and civil charges for breaching their fiduciary duty, in addition to losing their trustee designation. If you are a beneficiary who believes the trustee is stealing from the trust, contact an experienced trust litigation attorney as soon as possible to avoid further losses and damage.

How Is a Trustee Determined?

The selection of the trustee is the decision of the trustor. Anyone who can hold property can be appointed as a trustee. The decision should be made carefully at the time of the trust’s establishment, as it is a big responsibility. Most often, trustees are relatives or friends of the trustor, a finance professional, or a professional trust company. The trustee will have access to all of the property and assets of an estate, so whoever is chosen should be someone responsible, organized, and trustworthy.

If you are asked to be the trustee of an estate, consider the request carefully before accepting. Though it can be an honor to be given this title, it comes with great responsibility. Mismanagement can occur simply as a result of being disorganized or not understanding the legal requirements that come with the title. If you accept the position without having had prior experience as a trustee, seeking the guidance of an estate attorney from the beginning could help avoid any litigation in the future.

How Is It Possible for Trustees to Steal From a Trust?

Since trustees have access to all the assets in a trust, including physical property and bank accounts, it is possible for them to steal from the trust. This is against the law, but it does happen, and beneficiaries should be aware of how the trust is being handled and be on the lookout for possible wrongdoings on behalf of the trustee. You can request an accounting from the trustee if you have concerns about how they are handling the trust, which can be a useful piece of evidence. Trustees could attempt to abuse their power and steal from a trust in several ways, including:

  • Transferring assets into their own name as they hold the titles for physical property
  • Keeping all or some of the profits from any asset sales they conduct
  • “Borrowing” money to themselves or others from the trust
  • Failing to maintain records of the transactions of a trust
  • Neglecting to include assets on the itemized asset list and keeping said assets for themselves or selling them for their own profit
  • Stealing money from bank accounts accessed through the trust

What to Do If You Suspect a Trustee of Stealing

The wisest first step to take if you suspect the trustee may be stealing from a trust is to contact an experienced California trust litigation attorney to discuss the best course of action. Additionally, begin collecting as much detailed evidence as possible to support your claim. As a beneficiary, you are also entitled to request a trust accounting record from the trustee at any time. Trustees are obligated to keep detailed and accurate records of the disbursements and income of a trust, which are known as accountings.

Make a request for accounting from the trustee as soon as you suspect fraud or wrongdoing. A trustee’s failure to honor this request is a red flag. An attorney can assist you in petitioning the court to obligate the trustee to provide a trust accounting if they refuse to do so. Reviewing the accounting with your legal team and qualified accountants will allow you to see any transactions that were made to and from the trust and to whom they benefitted. If you discover suspicious transactions that didn’t benefit the beneficiaries or were unnecessary, or if there are missing transaction records, you may be able to prove a breach of fiduciary duty or mismanagement of funds.

What Consequences Can a Fraudulent Trustee Face?

If the trustee is found guilty of mismanagement, stealing, or any breach of their fiduciary duty, there are several consequences they may face.

  • Removal of Trustee Designation – If mismanagement is discovered, even simply due to a trustee not having the organizational skills to manage a trust, they could be removed from their role as trustee.
  • Civil Charges – Trustees found guilty of stealing from a trust can be sued by the beneficiaries. Civil charges can be sought to recover the lost funds that were stolen from the trust.
  • Embezzlement Charges – In addition to civil charges, a trustee can also be held criminally liable since stealing from an estate qualifies as embezzlement. Committing embezzlement can lead to felony charges and jail time.

What To Do If You Are a Trustee Charged With Theft

If you are on the other side of the case as a trustee who has been accused of theft, it is crucial to seek representation. As we’ve discussed, a conviction can result in life-changing consequences. Trustees have options when it comes to limiting the consequences of their actions, from stepping down as soon as possible to having a lawyer help them explain their position in the case of a misunderstanding. As soon as you are accused of theft by a beneficiary, discuss your case with an experienced trust litigation attorney to determine the best course of action in your situation.

Discuss Your Case With an Experienced Trust Litigation Lawyer

Trustees have a legal obligation to manage trusts in the best interests of their beneficiaries, but, unfortunately, cases of stealing and fraud do occur. If you suspect a trustee of stealing, we are ready to help you investigate your concerns and represent you as you seek justice. The team at Huber Fox, P.C. understands the complex legal system surrounding estate law and trust litigation, and we approach each case individually. Contact the experienced trust litigation attorneys at Huber Fox, P.C. as soon as you suspect fraud to have the best chances of winning your case and avoiding further damage by the trustee.

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