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Responding to the misappropriation of trust assets by a trustee

On Behalf of | Mar 20, 2024 | Estate Administration

A trustee may have to devote years of their life to managing trust resources. In California, a well-funded trust can provide intergenerational asset management. A trust may offer benefits for the person creating the trust and those expecting distributions from the trust. Those creating trusts often devote a lot of attention to the terms that they include, which may limit the distribution of assets to specific scenarios. Trustors also typically devote a lot of energy to the selection of the right trustee.

A trustee manages trust resources and distributes them in accordance with trust instructions. Unfortunately, sometimes that individual uses their position for personal benefit instead of focusing on the needs of beneficiaries.

How can people respond to the misappropriation or embezzlement of trust assets by a trustee?

By documenting the misconduct

If beneficiaries or family members of the trust’s creator hope to take action over misconduct, they need to first prove what has happened. Obtaining financial records from the trust, showing that someone who hired their own company paid more than the fair market value or otherwise establishing a history of misusing trust assets will be crucial. The California probate courts typically won’t act unless there is compelling evidence showing that something inappropriate occurred. The more proof there is of misconduct, the easier it can be to seek justice.

By requesting appropriate solutions

There are two potential solutions to a situation involving the misuse of trust resources. The first entails seeking the replacement of a trustee who violated their fiduciary duty. Proof that someone put their own interests before the needs of the trust could be enough to warrant the replacement of a trustee with someone else. Occasionally, when the misconduct of the trustee has been particularly egregious, there may be reason to request financial reimbursement. The courts can sometimes hold a trustee accountable for misappropriating trust resources. They may need to reimburse the trust for the value of the assets that should have gone to beneficiaries.

Understanding what assets are in a trust may help beneficiaries and family members of the trust store recognize when trust litigation could be necessary. People who realize that trust resources have diminished or disappeared can take appropriate steps to protect the remaining assets and hold an unethical trustee accountable for their conduct.