Facing Executor or Trustee Dishonesty: a Probate Attorney Perspective
When executors or trustees take advantage of trust
Most people assume that the person they have named as their executor or trustee is honest and would never take advantage of the position of trust they’ve been placed in – that they would never embezzle, cause unnecessary delays in the distribution of the assets, fail to account for assets, or otherwise mismanage the estate.
California probate courts see many cases of dishonest executors and trustees
Unfortunately, in many cases, they would be wrong. A local probate court judge recently stated that many of the cases he’s hearing these days deal with a dishonest executor or trustee (he also said that another “hotbed” of estate litigation deals with co-trustees who cannot get along with each other – but that’s a topic for another day).
Believe it or not, here’s a question someone had the audacity to ask me just a few days ago:
“[I am the trustee of a California trust.] The trust is large by my standards, plenty to cover all expenses and have a lot left over. There are only 2 beneficiaries, the trustee [me] and one other relative. [I] could use a few bucks right away! Or maybe a loan? Who would know?"
The "who would know?" standard of conduct
Would you want this person as your trustee? Should the standard of conduct be “who would know”?
If you are still unconvinced - or even neutral - about the fact that embezzlement, mismanagement, unnecessary delays or asset omissions happen with any regularity, take a moment to digest this small sampling of true stories about dishonest executors and trustees:
Example
In New Jersey, a brother and sister were named executors in their mother’s will. The brother refused to sign a tax return and began making unreasonable requests to which the sister could not agree. After several years, the brother was arrested on three federal indictments – two for embezzling over $400,000 and one for obstruction of justice (all relating to their mother’s estate). The brother pleaded guilty to tax evasion and to a felony charge of stealing from the estate.. Now the sister doesn’t know if her share of the estate will be seized to pay for the fines, penalties and interest on unpaid taxes tied to the estate (because, of course, the brother has no money left).
When their father died, one son was left as trustee of their father’s trust. He was supposed to manage the trust on behalf of himself, his brother and his sister. The siblings trusted their brother with the role at first, but soon realized that too many facts were not being revealed to them in a timely fashion. The siblings never saw a copy of the trust their father left, and the only funds the siblings received were from the sale of their father’s home. However, the sale did not bring in much money because their brother, the trustee, had failed to pay the mortgage for months. The house was on the verge of foreclosure when it was sold (unbeknownst to the other siblings) - the house had to be sold under extreme conditions and for far less than its fair market value. Other high-dollar assets belonging to their father were repossessed because the trustee failed to make timely loan payments on them. Now the brother and sister are left wondering if it’s worth taking any actions against the trustee to recoup the lost funds.
Executor and trustee responsibilities
Executors and trustees have a legal responsibility to act with honesty and impartiality on behalf of the estate’s beneficiaries, but sometimes this concept is lost on those tasked with these responsibilities.
When people face the need to name an executor or trustee in their will or trust, they sometimes feel the need to name their oldest child, regardless of that child’s ability to perform the needed tasks. I’ve actually had people tell me they don’t really trust the person they’re thinking of naming because s/he has had serious drug or mental problems in the past or because the person is “terrible at managing money.” This is not a person who should be named as an executor or trustee!!! Other people take drastic actions like naming all their children as executors so no one feels left out.
Naming the oldest is not necessarily a good idea
Naming a child as the executor or trustee because s/he is “the oldest” is a poor reason to name that child to manage one’s money and other assets. There are highly competent professionals who can be named instead. If you don’t know how to find these professional fiduciaries, ask me for assistance - if you are my client, I would be pleased to help you find a competent professional trustee.
All the best,
