How Do You Ensure That Funds Are Not Misused in a Trust?

The funds in a trust, such as special needs trust, is used to provide funds for the beneficiary of the trust. These funds are to be used supplementally and are directly used for the treatment and comfort of the disabled individual.

The beneficiary of a trust is the person whom the trust was created for. In the example of a special needs trust, it would be the disabled individual for whom the funds are being used for.

The trustee of a trust is the person who has legal discretion over the funds and property contained within the trust. They are appointed by the trustor. The trustee may also be an organization as is the case with a pooled trust.

The most common entity to misuse funds in a trust is the trustee, whether that is an individual or an organization. The trustee has sole discretion and access to the funds found within the trust. Since they have direct access to these funds, they are most likely to misuse them.

Yes, a properly vetted trustee is a great way to ensure that funds are not misused in a trust. The appointing of a trustee should not be taken lightly. You should take your time so that you know the person you are appointing will honor your wishes.

The first step to ensure that funds are not misused in a trust is to make sure the instructions of the trust are clear. You want to make sure that there is no gray area in a trust. Everything should be clearly and succinctly laid out. Furthermore, appointing a reliable trustee will also help mitigate the chances of misuse of funds.

If you suspect that your trustee is misusing the funds in your trust, you need to talk to an attorney. Misuse of funds is illegal and in direct violation of the duties of the trustee.

Yes. Detailed accounting of the funds is a good way to ensure that funds are not misused in a trust. If a dispute comes up, you can reference the bookkeeping of the trustee to see where the discrepancy came up. This is one defense against misuse of funds.

While a lack of detailed accounting does not in and of itself constitute a misuse of funds, it is a red flag. You want to have to an accurate record of what the funds are being used for. If there are incomplete or minimal bookkeeping, then this may point to misuse of funds.

You may suspect the trustee of a trust is misusing the funds in a trust if the accounts are incomplete, if funds are missing, property is missing, loans are made to friends of the trustee, etc., etc.

Yes. If the beneficiary knows through various means that their trustee is misusing funds, they can release them.

Yes, upon releasing their trustee, the beneficiary can charge the trustee with breach of their fiduciary duties. The goal is to get back the lost funds.

It is not enough to only look at the accounts of the trust created by the trustee. These may be incomplete. If there is suspicion of misuse of funds, it is important to look at the trustee’s personal accounts to see if “mysterious” funds appear. This can be crosschecked with the funds in the trust.

While some cases of misuse of funds do go to criminal court, many do not. This is because, often, the beneficiary does not wish to prosecute the trustee.

To get the misused funds back, it is important to start the process as soon as suspicion is detected. Informal research into the matter is crucial to find additional documents and proof of the misuse of funds. A formal petition should be signed, and, if need be, a court appearance should be scheduled quickly.

The most common form of misuse of funds in a trust is when the trustee’s personal finances are mingled with the funds in the trust.

It is easy for funds to mixed up, especially when the trustee must manage both on a consistent basis. Sometimes it is simply a mistake caused by human error, though sometimes it is not. Either way, it is considered misuse of the funds of the trust.

The best way to prevent this from happening is to put stipulations in the trust that specifically tell them to keep these funds separate. While this is not foolproof, it is an added defense to ensure the funds in the trust are not misused.

The trustee should not benefit personally from the fund in any way, including in the form of borrowing. If they do, then they are misusing the funds. The only exception is if it is clearly mentioned, recognized, and allowed by the beneficiary.

Yes, an attorney can help ensure that funds are not misused in a trust. During the drafting stage, the attorney will be able to carefully word and craft the trust to help avoid these pitfalls. The attorney will have extensive knowledge to help you avoid misuse of funds. Additionally, if the misuse of funds does happen, an attorney will be able to help you get the funds returned.