A trustee’s job is to manage the trust, which grants them access to all trust assets. While many trustees are trustworthy, occasionally trustees do steal from the trust or breach their fiduciary duties. If you’re wondering what to do if a trustee steals from a living trust, here is a guide to handling this situation.
Common ways a trustee steals from a trust
First, how does a trustee typically steal from a trust? Sometimes the theft is blatant and other times it is harder to detect. Here are some of the common ways we’ve seen trustees embezzle trust funds:
- Transferring trust assets into their own name
- “Borrowing” trust funds for personal use
- Stealing personal property like jewelry, vehicles, collectibles, etc.
- Loaning trust funds to another person
- Overcharging the trust for legitimate services (like CPA or house repairs)
- Commingling personal funds with trust funds
- Selling trust assets and keeping some or all of the profits for themselves
- Stealing money from trust bank or investment accounts
How can I tell if a trustee has stolen from a trust?
If you’re wondering how the beneficiaries can tell if theft has occurred, you might want to start by requesting a trust accounting. Beneficiaries are entitled to an annual accounting of the trustee’s actions with the trust property. If theft has occurred, often an accounting will make this evident.
If the trustee failed to maintain accurate records and cannot readily produce an accounting, this may also be a sign of misappropriation of trust funds.
What evidence is needed to prove the trustee stole from the trust?
To prove that a trustee is stealing from a California trust, look for evidence of transactions that benefited the trustee or hurt the trust beneficiaries. Under California Probate Code section 16002, the trustee has a “Duty of Loyalty”, meaning a duty to administer the trust solely in the interest of the beneficiaries. The trustee cannot use the trust for their own benefit.
Under Probate Code 16004, trustees also have a “Duty to Avoid Conflict of Interest”. This means they should not use trust property for their own profit or to the detriment of the beneficiaries.
If the trustee has breached their fiduciary duties, the beneficiaries will likely have a strong case against the trustee in court for trust and estate litigation.
What can a beneficiary do if they suspect the trustee is stealing from the trust?
Let’s say you’re a beneficiary who suspects that the trustee has stolen from the trust. What can you do about it?
The moment you suspect a breach of trust, embezzlement, or a trustee stealing from a trust, it’s time to contact an experienced trust litigation attorney. Time is of the essence so you will want to seek out an attorney who specializes in trust and estate law as soon as possible so they can counsel you on the best approach.
Common penalties for trust embezzlement
If the trustee is convicted of stealing from the trust, you may wonder what the penalty is for their actions. Here are some common penalties:
- Removing the trustee or appointing a co-trustee.
- Reducing or eliminating the trustee’s fee (the trustee’s compensation).
- Compelling the trustee to return the stolen property to the trust and possibly requiring them to pay double, treble, or punitive damages depending on the severity.
- Requiring the trustee to pay for the petitioner’s attorney fees and costs.
Can a trustee go to jail for stealing from a trust?
While technically a trustee can be jailed for theft if convicted of a criminal offense, this is rare. Typically, when a beneficiary sues a trustee for stealing from a trust, the matter is handled as a civil matter in probate court, rather than a criminal matter in a criminal court. A probate court does not send people to jail; this only happens in criminal court.
However, in extreme cases where trustees have stolen large sums of money, the beneficiaries may choose to pursue criminal charges of embezzlement and criminal misappropriation of property as well.
Under California law, embezzling trust funds or property valued at $950 or less is a misdemeanor offense and is punishable by up to 6 months in county jail. If a trustee embezzles more than $950 from the trust, they can be charged with felony embezzlement, which carries a sentence of up to 3 years in jail.
If you have any other questions about what to do if a trustee steals from a family trust, please feel free to contact our office to speak with our trust litigation lawyers.
FAQs
File the Necessary Petitions. A trustee's misappropriation of trust assets can usually be effectively handled with the filing of a few petitions in the probate court. If you have a lawyer, they can do this for you. First, you will need to decide how you want the trustee's alleged misconduct to be remedied.
What is it called when a trustee steals from a trust? ›
While trust accountings can be an everyday occurrence in estate law, trustee fraud and embezzlement are just some of the startling discoveries that can be made. Fraudulently appropriating property that belongs to someone else, also known as embezzlement, is a serious crime.
How is a trustee held accountable? ›
Trustees must follow the terms of the trust and are accountable to the beneficiaries for their actions. They may be held personally liable if they: Are found to be self-dealing, or using trust assets for their own benefit. Cause damage to a third party to the same extent as if the property was their own.
What is misconduct of a trustee? ›
What Is Executor and Trustee Misconduct? Examples of executor misconduct and trustee misconduct include: Failing to provide accountings to beneficiaries. Favoring one beneficiary over another. Misappropriating or misusing estate or trust assets for personal gain.
What is the criminal of a trustee? ›
“There are three fundamental elements when determining if a trustee can be held personally liable. They must be found guilty of self-dealing or using assets for their benefit, they must cause damage to a third party, and they must become subject to criminal charges for blatant disregard of the law and their duties.
How to know if a trustee is stealing? ›
If you're suspicious that a trustee is stealing from a Trust, there are legal steps that you can take. First, you can ask the trustee directly for a copy of the accounting records of the Trust. If they comply, you can look through the records and see if any suspicious activity can be identified.
What is trustee negligence? ›
A trustee may be negligent if they violate their duty of care. Trustee negligence often results from the trustee not understanding their obligations to the trust beneficiaries.
Can a beneficiary sue a trustee personally? ›
Can a beneficiary sue a trustee if the trustee has breached their fiduciary duties, committed misconduct or harmed the trust? The short answer is yes. Trust beneficiaries can bring a claim against the trustee, so long as they have a valid reason.
Who holds a trustee accountable? ›
Of course, you can always take your Trustee to court and ask the court to hold them accountable, but that requires YOU to take action, gather evidence, and act as both investigator and prosecutor of your own case. Often, people think that what a Trustee is doing amounts to a criminal act.
Can trustees be held personally liable? ›
Trustees may be personally liable if the assets of the charity are not sufficient to meet the indemnity. But only the people who are trustees at the time the tort was committed can be made liable in this way, unless successor trustees accept the liabilities of their predecessors.
A trustee must abide by the trust document and the California Probate Code. They are prohibited from using trust assets for personal gain and must act in the best interest of the beneficiaries. Trust assets are meant for the benefit of the trust beneficiaries and not for the personal use of the trustee.
What is it called when a trustee fails to act appropriately? ›
When a trustee fails in his or her duties, it is referred to as breach of fiduciary duty. Breach of fiduciary duty can come in many forms. Sometimes, the trustee will flat out take money from the trust.
What does a trustee violate fiduciary duties? ›
A trustee violates their fiduciary duties if they: Swindle estate funds (self-dealing) Combine estate and personal funds. Refuse to distribute assets to beneficiaries.
What happens if a trustee makes a mistake? ›
Typically a trustee is liable to the beneficiaries when he or she commits a breach of trust harming the trust or its beneficiaries. California Probate Code §16440(a) provides that a trustee is chargeable for a breach of trust that results in a loss in value of the trust estate, a profit made by the trustee, or a loss ...
Who has more right, a trustee or the beneficiary? ›
Yes, a trustee can override a beneficiary if the beneficiary requests something that is not permitted under the law or by the terms of the trust. Under California Probate Code §16000, trustees must administer the trust according to the terms of the trust instrument.
Can a trustee borrow money from a trust? ›
So long as the terms of the trust do not forbid the borrowing of trust funds by a trustee, a trustee may have the ability to borrow money from the trust.
What is misappropriation of trust funds? ›
Misappropriation of trust assets is when a trustee unlawfully uses them for personal gain without beneficiary consent. This act breaches their fiduciary duty. If such misconduct arises, beneficiaries can petition the probate court for the trustee's removal.
What is it called when a trustee fails to act properly? ›
When a trustee fails in his or her duties, it is referred to as breach of fiduciary duty. Breach of fiduciary duty can come in many forms. Sometimes, the trustee will flat out take money from the trust.
Can an executor steal money from a trust? ›
Dishonest executors may steal money from the estate before filing the Estate Inventory, concealing those assets from the intended beneficiaries and from the court. In addition to money, some personal items of value can be taken such as: Family photos or heirlooms. Artwork, jewelry, or collectibles.
