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How Beneficiaries Can Play a Key Role in Preventing and Detecting Trust and Estate Fraud

by | Jun 26, 2024

trust and estate fraud

More often than not, trustees, executors, and attorneys-in-fact act in good faith and with the best interests of the trust or estate they are managing in mind.  

Even so, beneficiaries should remain vigilant. Fraud cases involving those entrusted to manage a trust or estate are not uncommon. And while navigating the financial complexities of a trust or estate can be challenging, being proactive in monitoring how assets are being used and managed is crucial to helping prevent fraud and to spot it when it occurs.

Look for Warning Signs

An attentive beneficiary can spot red flags indicating possible mismanagement or fraud, including:

  • Unexpectedly low account balances: Watch for a sudden dip in funds without a clear explanation.
  • Missing assets or assets sold without consent: Seek answers about why property or investments have vanished or have been sold without your knowledge.
  • Questionable transactions: Look for odd or unauthorized transactions involving trust or estate assets and those managing the assets or their associates. 
  • Lack of communication: Getting answers or updates from your trustee or executor should not feel like pulling teeth. If communication is difficult, this can be a sign something is off.
  • Inadequate reporting: Flag reports that lack detail or whose figures don’t add up.
  • Financial anomalies: Keep an eye out for unexpected debts or charges that don’t align with the estate’s typical spending patterns.

Gather Evidence

Spotting red flags is just a starting point. Gathering concrete evidence is key to stopping fraud. However, piecing together the full story can be complex, given the multitude of accounts and transactions that may be involved. Beneficiaries can start their evidence gathering by:

  1. Reviewing bank statements: Look closely at how funds are being disbursed. Transfers or withdrawals to the executor, trustee, or any unusual cash movements deserve a closer look. It’s also wise to pay attention to any narrative by the trust or estate manager that tries to brush these off as loans or reimbursements without proper documentation.
  2. Assessing lifestyle inconsistencies: Pay close attention to whether transactions align with the lifestyle of the person who initiated the trust or who owned the estate. For example, If credit card bills are suddenly high for someone who rarely used them, or if questionable transactions appear after someone’s death, this could yield significant evidence of fraud.
  3. Checking the sources of incoming funds: Investigate income streams, like dividends or interest, to determine if they been diverted.

Next Step: Bring in the Professionals

If the initial evidence you have gathered points to fraud, you will need to take decisive and strategic action to protect your interests and ensure justice. At this point, it’s best to bring in the professionals. They can conduct a thorough review, identify and locate missing assets, gather evidence that will stand up in court, and provide ongoing legal assistance. 

If you find yourself needing to investigate and perhaps litigate over the management of a trust or estate, the first step is to find the right legal counsel. Lawyers specializing in trust and estate law can subpoena critical documents and offer critical advice on the steps beneficiaries should take in accordance with the law. Moreover, the lawyers can guide beneficiaries through the process of filing suits and represent their interests in court, ensuring that the interpretation and enforcement of the trust’s or estate’s terms are upheld.

A lawyer can also determine whether it makes sense to bring aboard a forensic accountant. By bringing in a forensic accountant, counsel can ensure that no financial stones are left unturned and that every legal avenue is pursued to safeguard your assets and uphold justice.

Forensic accountants can provide an in-depth analysis of financial inconsistencies and transactions, and their analytical skills can be pivotal when dealing with complex, intertwined transactions and scattered accounts. They are experts at dissecting financial statements, tracing funds, and uncovering fraudulent activities. And they are adept at collecting evidence that will stand up to scrutiny from judges and other finders of fact in the event of litigation. 

Forensic accountants and attorneys can give beneficiaries a formidable advantage as they confront and resolve issues of mismanagement or fraud. Being proactive by engaging both forensic and legal expertise not only serves to protect your assets but also ensures that the principles of trust and responsibility that govern estate and trust management are stringently observed.

To learn more about how we approach forensic investigations, visit our practice page or contact us for a consultation.

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