What Beneficiaries Can Do to Help Spot Fraud in a Trust or Estate

Lindsay H. Gill
Director of Forensic Technology
September 21, 2020

It’s an all-too frequent concern for people who are no longer managing their own finances: Are they being taken advantage of by a trustee, executor, or attorney-in-fact—and what can they do to spot and prevent such activity?

At Forensic Strategic Solutions, we are often approached by beneficiaries or their loved ones to investigate possible trust and estate mismanagement. Time and again, we have found serious breaches of fiduciary duty, including embezzlement, the comingling of personal and trust or estate assets, conflicts of interest, and self-dealing.

Identifying mismanagement or fraud in a trust or estate requires beneficiaries (or their loved ones) to be attentive to the sources and uses of their funds. Knowing how one’s money is being deployed by a trust or estate is simply sound practice, even if fraud or mismanagement isn’t suspected. But a strong familiarity with one’s assets can also help a beneficiary spot red flags that require further action and investigation.

RED FLAGS

Red flags for fraud or mismanagement can include:

  • Dwindling account balances.
  • Assets that are missing or have been sold.
  • Transactions between a trust or estate and the trustee, executor, or attorney-in-fact or their associates.
  • A trustee, executor, or attorney-in-fact’s failure to respond to questions from beneficiary.
  • Failure to timely provide reports, accounting, or updates.
  • Reports, accounting, or updates lacking in substance or detail.
  • Past due notices.
  • Credit card balances that are higher than normal.

FINDING EVIDENCE

Noticing a red flag— or following that funny feeling in one’s gut that something isn’t right—is just the first step in investigating potential wrongdoing. Evidence is needed, and a great place to start is a review of bank statements.

  1. Review how funds are being used. Look for cash withdrawals or transfers to unknown accounts. Withdrawals or transfers to the executor or trustee should receive additional scrutiny. Be aware of the “I was repaying myself” or “it was a loan” excuse, all transactions should be appropriately recorded and have supporting documentation.

We have found instances of the trustee, executor, or attorney-in-fact making distributions for their own benefit, often rationalized that they are due these funds for their time and effort, especially when the trustee, executor, or attorney-in-fact is a family member.

Also, look for evidence inconsistent with the lifestyle. In the case of a deceased, are credit card bills being paid, when the deceased did not use a credit card or exceed amounts usually charged? If a high-level review of the bank statements identifies red flags after the date of death, it may be helpful to review asset activity in the months prior to the individual’s death, especially if the deceased was in poor health or reliant upon the trustee, executor, or attorney-in-fact for care.

Activity of interest prior to death may include: large gifts to some but not all beneficiaries, specifically the trustee, executor, or attorney-in-fact; purchase of large assets that are no longer in the deceased’s name; large cash withdrawals just before or immediately after the date of death. Pay special attention to the signature on checks for irregularities or signs of forgery.

  1. Review the sources of funds. Review deposits to make sure that income has not been diverted. A review for a period of time prior to the date of death or appointment of an attorney-in-fact should help to identify a pattern of income to help establish if any sources of income have been diverted. Be aware of regular dividend or interest deposits that could be easily diverted. If assets were sold look for evidence that all proceeds are deposited to the trust or estate account.

NEXT STEPS

One of the challenges of delving into a trust or estate can be the sheer volume of accounts and transactions involved. As assets move among several accounts it can be challenging to trace activity.

When faced with such complexity, a beneficiary would be well-served to contact an experienced forensic accountant. At FSS, we have found that it often requires years of experience and expertise in investigations and advanced data analytics to uncover and thwart fraud.

To learn more about how we help beneficiaries and their loved ones, contact us for consultation.

CATEGORIZED UNDER: Fraud and Investigations  |  Fraud Examination