Trust Fund Fraud

Trusts and trust funds are frequently a part of estate planning for the elderly. They’re used to help preserve wealth for the individual as well as their beneficiaries. Many trusts are created for the benefit of the very young, very elderly, or someone who is incapacitated.

Trusts can also transfer assets out of an estate and into a place where it won’t be subjected to the probate process, and possibly estate taxes, for the distribution to beneficiaries when the time comes.

This is someone who oversees the funds in the trust and ensures that the terms are followed as directed. The trustee could be a relative, such as a spouse or adult child, or someone more objective, such as a family attorney, accountant, financial representative, or other professional.

Beneficiaries and co-trustees usually don’t know as much about the trust’s assets and management, the way funds are invested, or the rules that govern it. Because of this lack of knowledge, a trustee has the advantage as well the option to commit fraud.

One of the biggest roles of a trustee is recordkeeping. Although tax returns are required, it is not accurate enough for recordkeeping for the trust. Trustees must keep records of all income and payment disbursements from the trust. Administration costs must be reasonable, and trustees must not mix any funds from the trust with their own. Incorrect or improper recordkeeping can bring complaints from co-trustees or beneficiaries, with the possibility of court interaction.

It’s important to choose the right trustee, one who is qualified, whether an individual or corporation. A trustee will be responsible for protecting your interests and ensuring that your wishes and directions are carried out correctly.

Trustees generally have complete access to funds, as well as access to the trust’s financial records and information. That’s why it’s so important to make sure you select the right person as your trustee.

It’s vitally important that the trustee follow the terms and conditions that are spelled out in the trust documents, which are ultimately for the benefit of the beneficiaries. The interests of the beneficiaries always outweigh the benefits of the trustee. This legal contract is very clear on the duties of the trustee, known as their “fiduciary obligation.”

Failing to carry out those duties is a violation of the contract. Should you discover that a trustee is not performing his or her duties as instructed or has committed any type of fraud, it may be time to seek legal action.

The most common ways that trustees breach their fiduciary obligation include:

• Mismanaging trust assets, records or trust management
• Fraud
• Borrowing from the trust for personal use, particularly outside of the trust’s terms
• Behaves in a self-serving manner that enriches him or herself to the detriment of the beneficiaries
• Charging an unusually large amount of money for trust administration
• Fails to keep accurate and complete records of the trust’s activities
• Working with one or more beneficiaries at the expense of other beneficiaries
• Failing to report to beneficiaries and keep them informed
• Permitting a co-trustee to breach his or her fiduciary duty and/or commit fraud
• Co-mingling trust funds with outside funds, including their own

There are strict rules surrounding trustees, but theft, fraud, mismanagement, and failing to protect trusts and beneficiaries occur much too often.

Financial fraud against the elderly – a form of abuse or exploitation – occurs when a relationship based on trust is broken. This happens when someone:

• Knowingly deprives the victim of use of his or her benefits of personal funds – either through deception or intimidation
• Knows or reasonably should know that the elderly person lacks capacity to consent; and
• Commits a breach of fiduciary duty to an elderly person resulting in an unauthorized appropriation of funds or assets.

Millions of elderly Americans have been the victim of financial elder abuse, totaling billions from over 5 million victims every year.

All registered brokers and firms are expected to follow best practices and ethics guidelines of the Financial Industry Regulatory Agency (FINRA), the investment industry’s self-regulatory organization.

FINRA regulations prohibit financial advisors and brokers from becoming overly involved in a client’s estate or trust. Such involvement includes:

• Being personally named as a beneficiary in a client’s will
• Using an elderly client’s assets for his or her own benefit (conversion)
• Improperly being assigned durable power of attorney
• Abusing durable power of attorney (if assigned)
• Failing to allocate funds as directed by a client’s instructions and wishes

Only in rare occasions should a stockbroker be named as a trustee or a beneficiary of an estate. In those rare circumstances, it is usually because of a family relationship. Our attorneys have represented families whose financial advisor improperly served as a trustee or beneficiary of an estate improperly taking money from an estate. Silver Law Group has also written the SEC about preventing this type of abuse.

It is important to understand that elderly or incapacitated victims of financial fraud have rights. If you or a loved one believe that you have been wronged due to elder fraud, abuse, or exploitation, you may be able to recover some or all of your losses with the help of an experienced attorney. Our attorneys have extensive experience representing trusts in securities arbitration claims and exposing stockbrokers and others who abuse a trust.

The attorneys at Silver Law Group are advocates for protecting the elderly and seeking justice for offenders in cases of elder financial fraud. We never charge for a consultation and are happy to talk privately about your unique situation. Contact us today to speak with an experienced securities arbitration attorney. Call us at 1-800-975-4345 or use our online contact form.