Consequences of a Trustee Committing Fraud

Yee Law Group Inc. > Consequences of a Trustee Committing Fraud

Being the beneficiary of a trust, you are not always kept abreast of all the day-to-day responsibilities of the trustee. You do just that — trust the trustee. The trustee is given the responsibility to handle the assets in the trust, usually without much supervision. What happens if the trustee commits improprieties or even fraud when handling the trust?

When a trust is formed, the intent of the grantor, or creator, is that the contents of the trust be taken care of and appropriated per their request. The intents of the grantor should be directly reflected by the terms of the trust. The priority of the trustee is to adhere to the terms of the trust for the benefit of the beneficiaries. The trustee’s interests are secondary to the beneficiaries interests.

The trustee is a guardian of the contents of  the trust. The contents of the trust will be dispersed to the beneficiaries upon the death or deaths of the holders of the trust.

Duties of the Trustee

  • The assets of the trust must not be commingled with the trustees own assets.
  • Keep accurate records showing payments and income activity within the trust.
  • Costs to administer the trust should be justifiable
  • Do not use Federal Tax returns to account for trust payments and income as the tax filing requirements differ from the recordkeeping requirements for the trust.
  • If legitimate records are not kept by the trustee, chances are the courts will decide against the trustee.

How a Trustee Can Fail

A trustee may be unable to manage the trust effectively for a number of reasons, including not performing the duties required to maintain the trust. They may not property account for distributions or assets. It may not be intentional, just ineffective and inefficient.

On the other hand, a trustee may also behave with their own best interests at heart. This can sometimes happen if the trustee is also a beneficiary.

In another situation, a trustee may withdraw funds from the trust for themselves. The trustee possibly is having financial difficulties and takes money from the trust with the intention of paying the fund back, but never does.

The absolute worst situation would be for the trustee to intentionally take money from the trust not intending to ever return it.

What Happens if you Suspect Fraud?

If you are a beneficiary and you suspect the trustee is committing fraud or mishandling the funds of the trust, first ask for the accounting records of the trust. The trustee is obligated to keep accurate records. If the trustee cannot provide this to you, or does not give a legal reason why they cannot do so, it is time to look to the courts for help.

Is there a statute of limitations If the fraud has been happening for years and is just now being discovered? Not necessarily, especially if the fraud was intentionally committed. In addition if there was not fraud but it can be shown that the trustee used the money for their own benefit, the court could mandate that the trustee return the money.

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