Spotting the Red Flags of Trusts and Estates Fraud

Executors and trustees have a large amount of responsibility with respect to the assets they manage and to the beneficiaries for whose benefit they manage such assets. However, with a high degree of responsibility comes a high degree of accountability. That accountability comes in the form of the fiduciary duties that trustees and executors owe to the beneficiaries of an estate or trust. Chief among those fiduciary duties are the duties of loyalty, care, impartiality, and disclosure.

One way that executors and trustees can breach their fiduciary duties is by engaging in fraud. Executor or trustee fraud occurs when the executor or trustee uses deceit to misappropriate estate or trust assets for themselves or someone else not entitled to receive them. Claims of executor or trustee fraud can have serious consequences, including holding the executor or trustee personally liable for the losses suffered by the beneficiaries.

Examples of ways that an executor or trustee can commit fraud against the beneficiaries include:

  • Misappropriating assets of the estate or trust
  • Withholding distributions from beneficiaries
  • Distributing less than what a beneficiary is entitled
  • Hiding or omitting estate or trust assets
  • Failing to notify beneficiaries
  • Falsifying liabilities
  • Charging inflated fees
  • Selling assets for below market value to someone connected to the trustee or executor such as a friend or family member.

Spotting executor or trustee fraud requires vigilance. Lawyers, guardians, beneficiaries and others should be on the lookout for red flags that may indicate misappropriation, mismanagement, or deceit, and should trust their instincts if they suspect something wrong.

Some common red flags that may signal a need for further investigation include:

  • Shifting Bank Balances: This may include sudden decreases in account balances including larger-than-usual withdrawals.
  • Missing Assets: This may include the unexplained disappearance of funds or possessions or the sudden transfer or sale of assets, particularly to those connected to the trustee or executor. If a long-maintained fine art collection suddenly goes missing or up for sale, further investigation is warranted.
  • Self- or Insider Dealing: This may include transactions between a trust or estate and the trustee, executor, or attorney-in-fact or their associates.
  • Vague Information or Missing Reports: This may include attempts to obscure specific actions or dispositions with reports or accounting that lack substance or detail. Alternatively, this could include providing scheduled reports late or not at all.
  • Default or Past Due Notices: This may involve a sudden or unexplained influx of default or late notices which could indicate that the assets of the estate or trust may have been drained and the trust or estate lacks the money necessary to meet its obligations.

Investigating potential executor or trustee fraud can be challenging—particularly when the estate or trust has a large number of assets or a complex structure—because of the array of accounts and transactions that may be involved. Even under the best of circumstances, where fraud is not suspected, tracing individual assets may be difficult if they move among several accounts or locations. Often the best course of action is to consult with an experienced breach of fiduciary duty and fraud attorney who has experience with forensic accounting.

Typically, an experienced attorney will retain the services of a forensic accountant to comb through records to extract evidence that will stand up to scrutiny law enforcement and courts. Even if fraud is not suspected, a beneficiary may still desire to seek a forensic review to determine if all assets have been accounted for and that they are being equitably distributed among beneficiaries. Investigative work of this nature requires sophisticated forensic tools that combine multiple data sets, financial records and unstructured data into a usable form for investigation and analysis.

If you believe that the executor or administrator of an estate has breached their fiduciary duties or engaged in fraud, it is important to enlist the services of an experienced trust and estate fraud attorney to review your legal options. Our Chicago breach of fiduciary duty and business litigation attorneys have defended and prosecuted complex fraud and breach of fiduciary duty lawsuits as well as business divorce litigation for more than thirty years. In recognition of their stellar track record and experience, Super Lawyers named Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the categories of Business Litigation, Consumer Rights, and Class Action Litigation. We handle high-stakes breach of fiduciary duty lawsuits and emergency business litigation involving injunctions, TROS, and declaratory judgments in a variety of corporate disputes. If you’d like to discuss how the experienced Illinois breach of fiduciary duty attorneys at Lubin Austermuehle, P.C. can help, we would like to hear from you. To set up a consultation with one of our Chicago business attorneys and Chicago trial lawyers, please call us locally at (630) 333-0333 or toll-free at (833) 306-4933 or contact us online.

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