Everything You Need To Know About Stopping Trustee Embezzlement & Misappropriation in California
Embezzlement of a family trust is the theft or misappropriation of funds that either 1) belong to the trust, or 2) should belong to the trust but were stolen from a decedent before they passed. Although embezzlement has criminal penalties, trust litigation attorneys handle only the civil aspect of the case–the monetary relief.
Can a Trustee Use Funds From the Family Trust?
A trustee manages a trust and has a duty to make responsible decisions regarding the assets in the trust. In most cases, a trustee cannot take any funds from the trust for themselves. They can, however, receive a stipend (trustee fee) for their efforts in managing the trust. Importantly, beneficiaries should ask a trustee to provide a trust accounting which explains what is being done with trust assets if they have any concerns that a trustee may be stealing from the trust.
If a trustee has been stealing money, then they are in breach of their fiduciary duty and may be removed from their trustee position and surcharged for the amount stolen.
How Do I Know if the Trustee is Stealing?
To establish that a trustee is in fact stealing from a trust, we look for evidence that the trustee engaged in transactions that benefited them, but did not benefit the beneficiaries of the trust. For example, a trustee may give “loans” from the trust to themselves or to family members or close friends.
Criminal Misappropriation of Property
A criminal court case charges criminal misappropriation of property. Thus, trust litigation attorneys who handle the civil proceedings of the case would not engage with the criminal misappropriation of property.
What is a Breach of Trust?
A trustee is a fiduciary appointed to fulfill the requirements of a trust. If a trustee does not abide by trust instructions or their legal obligations, probate litigation can be used to suspend, remove, replace, and recover damages from the trustee. Cal. Prob. Code, §16420.
A breach of trust most commonly refers to a trustee’s breach of fiduciary duty. A trustee is obligated to act prudently and in a manner that a reasonable trustee would act in a similar circumstance. A trustee may not favor certain beneficiaries, partake in transactions that do not benefit the trust beneficiaries etc. Fundamentally, a trustee has a fiduciary duty to act in the best interest of the trust beneficiaries. A failure to do so likely means the trustee breached their fiduciary duty.
Knowing and understanding the duties of the trustee is an important step to better understanding the complicated nature of wills and trusts. We highly recommend you consult with an experienced trust & estate attorney who can help you enforce or contest a will or trust.
What Standard of Care Does a Trustee of a California Trust Owe to a Beneficiary or Heir?
Standard of Care Definition: A trustee must administer a trust with reasonable care, skill, and caution that a prudent person would exercise to accomplish the goal(s) of a trust. Cal. Prob. Code, §16040. Trustees that have a special skill (i.e. expert in investing) are required to use those skills in administering their trustee duties. Cal. Prob. Code, §16014.
Beneficiaries often seek to understand the duties of a trustee in California, which are explained below.
Adherence to Trust Language
A Trustee must execute the terms of a trust. Cal. Prob. Code, §16000.
Duty of Loyalty
A trustee must act impartially between beneficiaries. Cal. Prob. Code, §16003. Further, a trustee must act in the best interest of the beneficiaries and must administer the trust with the sole purpose being to benefit the beneficiaries. Cal. Prob. Code, §16002.
Duty to Invest and Diversify
In California, a trustee is subject to the Uniform Prudent Investor Act which holds a trustee must manage and invest trust assets as a prudent investor. Cal. Prob. Code, §16047. A trustee has a duty to diversity trust investments unless the terms of the trust say otherwise. Cal. Prob. Code, §§16046(b), 16048.
Duty to Earmark and Segregate
A trustee must label trust property as trust property (i.e., Jane Doe as Trustee of John Doe’s Revocable Living Trust). Further, a Trustee cannot comingle their own personal funds with trust funds nor may a trustee comingle funds from one trust with funds from another. Cal. Prob. Code, §16009.
Duty Not to Delegate
A trustee has a duty not to delegate their powers (even to another trustee). However, a trustee may delegate their duty to invest. Moreover, a trustee may rely on professional advisors in making a decision. Cal. Prob. Code, §16052.
Duty to Account and Duty to Disclose
A trustee must, on a regular basis give beneficiaries a statement of income and expenses of the trust. Cal. Prob. Code, §16062. A trustee must also keep beneficiaries reasonably informed about the trust and its administration. Cal. Prob. Code, §16060.
What is the Penalty for a Trustee Who Breaches their Duty of Loyalty?
If the breach of duty of loyalty resulted in a loss to the trust, the trustee must make good the loss by paying for it out of their own pocket. If the trustee makes a profit from their breach, then the trustee is considered a constructive trustee and must turn over those profits to the intended beneficiary of the trust. Cal. Prob. Code, §16440.
What is the Penalty for a Trustee Who Steals From an Estate?
When a trustee steals from an estate, sometimes the penalty is simply returning what was stolen to the trust or estate. Depending on the facts of each case, greater penalties may sometimes be possible as the California Probate Code does provide statutory bases for double damages, treble damages, punitive damages etc.
Civil Court vs. Criminal Court
When there is theft from an estate or trust, it is a civil matter. Unless great in scope, it is unlikely a district attorney will have the resources to to prosecute any individual estate/trusts theft case. Thus, theft of an estate or trust is dealt with in civil (probate) court where going to jail is not an available remedy.
How Can I Prove Someone Stole From an Estate?
If you believe someone (a trustee, family member etc.) is stealing from an estate, you should immediately contact an estate litigation attorney as there are timeframes in which a case must be brought otherwise you may lose your claim. A trust litigation attorney will help you understand your claims and guide you through all necessary procedures.
How Do I Get Stolen Money/Assets Returned?
To get assets returned, the first step you need to take is contacting a trust and estate litigation attorney. From there, an attorney can help you file a formal complaint or petition. Before heading to trial, trust litigation attorneys will work with opposing parties and the court to reach a formal or informal resolution. If no resolution can be reached, a trial may be set.
When Do I Need a Trust & Estate Litigation Attorney?
When you have reason to suspect someone is stealing from a trust or estate or that a trustee is in breach of one of their fiduciary duties, you should contact a trust & estate litigation attorney.
How Much Does a Trust & Estate Litigation Attorney Cost?
The cost of an trust and estate litigation attorney depends on your case. The more complex your case is, the number of claims and types of assets involved, all impact the cost of your case. If you believe you have a case, reach out to a trust and estate litigation attorney today to receive an estimate.
Contact an Experienced California Trust & Probate Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley
We highly recommend you speak with an experienced California trust, estate, and probate attorney. For a free consultation, contact the attorneys at Talkov Law at (844) 4-TALKOV (825568) or info(at)talkovlaw.com.
Our Trust, Probate and Estate Litigation Attorneys practice in the following areas: