Money can be a compelling temptation.  Some trustees give in to their temptation and misappropriate trust funds for their own personal use.  After the fact, when they are caught, such trustees may try to re-characterize their misappropriation as so-called “borrowing”.

          Such misappropriation, of course, is not “borrowing” and repayment does not make it a loan.  It is embezzlement – a crime.  In California embezzlement is defined as fraudulently appropriating property that belongs to someone else, and has been entrusted to you. 

          With a trust, the trustee holds lawful title and possession in order to manage the trust assets.  They owe a legal duty to administer such assets strictly according to the terms of the trust for the sole benefit of the trust beneficiaries. 

          Thus, a trustee is guilty of embezzlement when the trustee misappropriates trust assets for self-use, or to benefit any other person in violation of the terms of the trust.

          Some trusts permit legitimate borrowing of funds by the beneficiary.  Oftentimes with living trusts the trustee is also a beneficiary.  If the trustee seeks to borrow funds then this should be done in strict adherence to the trust’s terms that allow such borrowing.  This is just one place where a trustee needs the guidance of an attorney.

          A trustee who embezzles can expect to face both severe civil and criminal sanctions. 

          A trustee who has embezzled but before they are caught comes forward and discloses their wrongdoing to the beneficiaries is more likely to avoid imprisonment.   A trustee who is not so forthcoming but is caught in the act has much less reason to expect leniency with criminal prosecution. 

          A trustee who embezzles will also be subject to civil restitution and surcharges (penalties).  They may well end up making payments for many years to come. Crime does not pay.

          There are certain types of people who if appointed as trustees appear to be more likely to embezzle funds.  People with drugs and/or alcohol addictions, people who cannot support themselves and people who spend more than they make come readily to mind.  These people live day to day.  They think mainly about their own personal problems and needs.  They don’t think much, if at all, about the consequences of their actions both to themselves and others. That is down the road. 

          The best way to minimize the likelihood of a future embezzlement involving the management of one’s own trust is to avoid naming such persons as possible trustees.

          Unfortunately, these same persons are sometimes enterprising in influencing persons who care about them and in getting themselves named as future trustee.  Usually, a non-professional trustee is also one of the beneficiaries who has a strong personal relationship with the person who established the trust (the “settlor”).  That personal relationship may arise in a variety of ways.

          Elderly and lonely people, especially those with diminished capacity, often need caregivers.  These caregivers spend a lot of time in their home.  They may become more important to them than their own family, who doesn’t spend much time with them.  Families who neglect their elderly should not be surprised if financial elder abuse occurs as a result of a caregiver’s activities.

          Beneficiaries of a trust who distrust the trustee can hire an attorney to obtain information regarding the trust assets, liabilities and actions of the trustee affecting the same.  Beneficiaries can also petition the court for an accounting and removal of the trustee when the actions and/or inactions of the trustee provide grounds.

          Trusts are intended to avoid a more costly and time consuming court supervised probate.  Without court oversight, the integrity and capabilities of the trustee become even more important to whether the trust will be administered properly.   Choose the trustee wisely.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”