The misappropriation of trust funds is a severe breach of a trustee’s fiduciary duty that can have significant consequences, but for beneficiaries, it can be difficult to detect. With the help of an expert trust accountant, you can rest assured that you can identify this breach to ensure the trustee is administering the trust per the California probate code. Interpreting this document alone can feel like maneuvering through a maze, but with a professional trust accountant, it will feel like a walk in the park.
At Marcia L. Campbell, we have been verifying that trustees are not abusing their station by reviewing trust accountings, identifying this breach, and helping beneficiaries bring trustees with ulterior motives to justice for decades. Learn about this breach in our blog.
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What is Misappropriation of Trust Funds?
Misappropriation of trust funds is a breach of fiduciary duty that occurs when a trustee uses trust funds for their benefit without getting beneficiary approval. Some common examples of misappropriation include:
- Failing to deposit trust funds into a trust account
- Making distributions that result in overdrafts
- Paying expenses that aren’t related to the trust from the trust account
Per Probate Code section 16000, trustees must also administer the trust according to the trust document, which includes distributing assets to beneficiaries as the trust stipulates. Trustees must also fulfill their ‘fiduciary duty’ when they make distributions.
Misappropriation is either the result of a neglectful trustee or one with ulterior motives and an inaccurate trust accounting that doesn’t comply with the probate code is a huge red flag to be aware of. Working with a professional trust accountant is essential to ensure a trustee is upholding their duty.
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What is the Penalty for the Misappropriation of Trust Funds?
Misappropriation of trust funds is a severe breach of fiduciary duty that occurs when a trustee uses trust assets for their gain without beneficiary approval (unless the trust document states otherwise.)
When this breach occurs, beneficiaries often file a petition to remove the trustee with the probate court. The penalty for misappropriation can include:
- The probate court removing the trustee
- Beneficiaries filing to compel the court to check for misappropriation
- Undergoing trust litigation to force the trustee to return all property
- The court revoking the trustee’s right to receive payment for their services
- The court surcharging trustees and distributing it among beneficiaries
“The penalty for misappropriation of trust funds can be severe for trustees. Time and time again, we have seen trustees abuse their position for their own gain and commit misappropriation. Trust accounting is a specialized field, and you need a specialized accountant to review the report and detect abnormalities and incongruencies that signal a far deeper problem that requires immediate action.” – Marcia L. Campbell, an expert trust accountant in California.
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Expert Trust Accounting in California
Trustees are responsible for administering and overseeing trusts and making timely distributions per the trust instrument. However, sometimes, trustees use their power for their own gain. In these situations, when a trustee prepares an accounting, this document is complicated, and reading it, interpreting it, and identifying signs of this egregious breach is difficult without an experienced eye of a trust accountant. When this occurs, it jeopardizes the integrity of the trust and your inheritance, which is why taking immediate action is of the utmost importance in the face of this malfeasance.