Trusts are a popular way for people to leave behind inheritances for their loved ones and take care of them when they are no longer around to do so. However, for trusts to be effective, having a trustworthy trustee at the helm is crucial. Unfortunately, people often appoint unfit individuals to this position, whether it’s due to a trustee’s lack of integrity, knowledge, experience, or all three. And trust embezzlement is all too common. When a trustee embezzles from a trust, this can have far-reaching consequences on your current and future financial stability if you do not detect it and act quickly.
A trust accountant may not be Sherlock Holmes, but they can do some sleuthing and piece together the clues you need to identify this violation of duty. They have the specialized experience and expertise to identify the first signs of a breach of duty so that you can hold a trustee accountable and reverse the damage they’ve done to a trust.
What is Trust Embezzlement?
Trust embezzlement is a severe offense and violation of a trustee’s fiduciary duty. This offense refers to situations where a trustee has intentionally stolen or misappropriated the assets they oversee in the trust for unintended purposes. Common examples include:
- Stealing trust funds or property
- Paying themselves excessive trustee fees
- Overcharging the trust for third-party services
- Borrowing trust funds or property for personal use
- Commingling personal assets with trust assets
- Selling trust assets and keeping profits for themselves
- Loaning trust assets to themselves or others
Trust embezzlement can take countless forms. Whether this means transferring funds to their bank account for unauthorized use, stealing valuable items from the trust, or investing trust funds in business ventures from which they will benefit at the expense of beneficiaries, these are all serious offenses.
Related Article: How a Trust Accounting Can Uncover a Misappropriation of Funds
How a Trust Accounting Can Uncover Trust Embezzlement
Working with a professional trust accountant to review a trust accounting can be a huge help in uncovering trust embezzlement. After all, money usually leaves a paper trail. A trust accounting is a detailed description of all assets a trust holds and transactions pertaining to a trust.
An accounting is usually where beneficiaries and attorneys can uncover the first signs of trustee embezzlement. As a beneficiary, you have the right to request an accounting. The trustee has 60 days to respond. If they refuse to provide one, this is a serious red flag.
In that situation, contact an attorney ASAP. After receiving an accounting, a trust accountant can review it to identify signs of embezzlement.
The trust accountant will review the accounting, bank records, and other relevant financial documents in detail to identify signs like transactions that don’t add up, inexplicable bounced checks, and suspicious transactions that benefit the trustee over the beneficiaries.
An inaccurate trust accounting is also a cause for concern because it could signal they are hiding something. A trust accounting is a complex financial document that requires some experience and expertise to interpret. Let’s get into two hypothetical scenarios of a trust accountant uncovering embezzlement.
Related Article: What is a Trust Accounting in California?
Examples of How a Trust Accountant Can Uncover Trust Embezzlement
Let’s look at two different scenarios where a trust accountant could uncover this transgression for you or your attorney so that you can defend your inheritance.
First, imagine you suspect a trustee stole valuable jewelry from the trust.
Part of a trust accounting involves providing an inventory of all assets a trust holds. With the accounting and the inventory, your trust accountant can confirm that the trust held the jewelry, identify when it left the trust, who it went to, and for what purpose the transaction was made.
It’s important to note that most costume jewelry is valued as one lump sum as a collection in the trust accounting. But if there is a more valuable piece of jewelry, it could appear as a single item on the trust accounting. Part of what makes a trust accountant so valuable is their knowledge of this and their ability to interpret the complexities of the trust accounting.
If the transaction was not made solely for your benefit and that of the trust, this is a breach of duty. If there is no record of a transaction and the item is missing, this is also a huge red flag that the trustee has breached their fiduciary duty.
A second example that is unfortunately common is when a trustee steals money. A trust accountant will also be able to identify when money was transferred out of the trust, who received it, what its purpose was, and ensure all the numbers add up.
If the numbers can’t be reconciled, the transaction was unauthorized per the trust document, or the money was transferred for the benefit of anyone but the trust or beneficiaries, then an accountant can flag this violation and put you on track to defending your inheritance.
“A trust accounting is an invaluable tool for beneficiaries that a trustee must prepare and provide. This is one of your last lines of defense. An accounting provides a window into how a trustee is managing a trust. But detecting breaches of duty requires understanding the complex language in the trust and specialized financial experience in this field, which is why working with a professional is imperative.”
– Marcia L. Campbell, CPA, Trust Accountant
Related Article: How a Probate Court Accounting in California Helps in Court
Do You Suspect a Trustee is Violating Their Fiduciary Duty? Numbers Don’t Lie, and a Trust Accountant Can Help Identify Signs of a Breach of Duty.
If you are facing trust embezzlement, you need a team on your side who can hold the trustee accountable and restore the funds and assets they stole. A trust accountant is essential to identify suspicious transactions. If you suspect any breach of duty whatsoever, working with a premier trust accountant and trust litigation lawyer is of the utmost importance.
