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Stephen Beroes, Elizabeth A. Beroes, Julie Elizabeth Beroes, and Shanice Williams
Stephen Beroes, Elizabeth A. Beroes, Julie Elizabeth Beroes, Shanice Williams

What if a trustee takes money from a trust?

On Behalf of | Oct 7, 2019 | Estate And Trust Administration

When a person creates a trust, they may pick another person to act as a trustee and oversee that trust. That person is not the beneficiary. Instead, they work to administer the trust. Their goal is to work for the beneficiary, in a sense, within the rules of the trust itself.

For instance, imagine that a parent creates a financial trust for a child who is a minor. They do not want to turn over all of the money to the minor immediately, but they want to know that the money gets used to provide for the child if they pass away. It is then the trustee’s job to use the assets in the trust appropriately, always putting the beneficiary first. This is known as a fiduciary relationship.

Potential issues

But what happens if the trustee breaks the rules of the trust? What if they take money for themselves or for some other non-approved action?

For example, maybe they need to take out a few thousand dollars to help pay for the child’s tuition. They take out an extra thousand and “pay” themselves for the time and work they’re putting in.

Essentially, they’re stealing from the trust and from the beneficiary. It could have a drastic impact on that person’s life. If they run out of money before they’re done paying tuition, for instance, they could lose their spot at school. But, even if they do not see this large-scale impact, taking money out of the trust is theft.

Legally accountable

Things like this do happen. It’s an unfortunate reality. Some people may try to justify it to themselves. For instance, a guardian who is also a trustee may think they deserve money for taking care of the child after a parent’s death, even though they agreed to do so without compensation in the past.

These thin justifications aside, remember that the trustee has an obligation to put the beneficiary first and only work toward their best interests. If they do not do so in any way, causing damage to this person’s interests, they are legally accountable.

In the above example, the trustee may have to pay back the money that they took. They will likely also get replaced by a more reliable trustee. In addition, if their actions harmed the beneficiary in some other way — delaying their education, for instance, or making it so that they do not get needed medical care — the trustee may have to pay compensation through a lawsuit.

Has this happened to you or a family member? If so, it is crucial that you know exactly what steps to take and what legal options you have available to you.