Can a Trustee Steal Money from the Trust

Emily just called, devastated. Her mother’s trust, carefully crafted over decades, is now the subject of a court battle. Emily discovered her brother, acting as trustee, had transferred $80,000 to his personal account, claiming it was a “loan” with no documentation. Now, legal fees are mounting, and the trust’s assets are dwindling, threatening the financial security of Emily’s elderly aunt. This isn’t an isolated incident; unfortunately, trustee misappropriation is far more common than people realize, and the consequences can be financially ruinous for beneficiaries.

As an estate planning attorney and CPA with over 35 years of experience here in Escondido, California, I’ve seen firsthand how easily things can go wrong when trust administration lacks proper oversight. It’s crucial to understand not only the legal duties of a trustee but also the subtle signs of potential wrongdoing. The fact that I’m also a CPA gives me a unique advantage; I understand the intricacies of asset valuation, capital gains implications, and the importance of maintaining meticulous financial records – all vital in detecting and proving trustee malfeasance.

What are a Trustee’s Legal Duties?

A trustee owes the highest duty of care to the beneficiaries of the trust. This isn’t merely a suggestion; it’s a legally enforceable obligation. These duties, often referred to as the “prudent trustee” standard, include:

• Loyalty: The trustee must act solely in the best interests of the beneficiaries, avoiding any conflicts of interest.
• Impartiality: If there are multiple beneficiaries, the trustee must treat them fairly and equitably, without favoring one over another.
• Prudence: The trustee must manage the trust assets with the same care, skill, and caution that a prudent person would use in managing their own affairs. This includes diversification of investments and avoiding unnecessarily risky ventures.
• Accounting: The trustee is required to keep accurate and detailed records of all trust transactions, and to provide regular accountings to the beneficiaries.
• Communication: Keeping beneficiaries reasonably informed about the administration of the trust is essential. Silence can breed suspicion and make it harder to detect wrongdoing.

When a trustee violates these duties, they open themselves up to potential liability, including surcharges, removal from office, and even personal liability for losses to the trust.

How Can a Trustee Misappropriate Funds?

Misappropriation isn’t always a blatant, one-time theft. It can take many forms, some of which are quite subtle. Common examples include:

• Self-Dealing: Using trust assets for personal benefit, such as borrowing money from the trust without proper authorization or purchasing property from the trust at an unfairly low price.
• Commingling: Mixing trust funds with personal funds, making it difficult to track where the money is going.
• Excessive Compensation: Paying themselves an unreasonably high trustee fee.
• Failure to Invest Prudently: Making risky or speculative investments that result in losses to the trust.
• Hidden Expenses: Charging the trust for expenses that are not legitimate or necessary.

Sometimes, the misappropriation is masked as legitimate business expenses. It’s critical to scrutinize all transactions and look for red flags. And remember, if a Will is invalidated, assets fall under intestacy; however, for deaths on or after April 1, 2025, estates with personal property under $208,850 (per CPC § 13100) may still bypass full probate via affidavit.

What Can Beneficiaries Do if They Suspect Misappropriation?

If you suspect a trustee is stealing from the trust, it’s essential to take swift action. Don’t delay, as statutes of limitations apply. Here’s what you should do:

• Document Everything: Gather all available documentation, including trust agreements, account statements, and any communication with the trustee.
• Demand an Accounting: Formally request a detailed accounting of all trust transactions. The trustee is legally obligated to provide this.
• Consider a Formal Investigation: If the trustee refuses to provide an accounting or if you suspect the accounting is inaccurate, you may need to hire a forensic accountant to conduct a thorough investigation.
• Petition the Court: If you have evidence of misappropriation, you can petition the court to remove the trustee, compel an accounting, and recover the stolen funds. Unless there are two other disinterested witnesses, a beneficiary who is also a witness may lose their gift, taking only what they would have received under intestacy rules (California Probate Code § 6112).

Be aware that bringing a legal action against a trustee can be costly and time-consuming. However, the potential consequences of inaction – losing valuable assets – are far greater. Moreover, including a self-proving affidavit allows the Will to be admitted to probate without the testimony of the subscribing witnesses, significantly accelerating the court’s approval process (Probate Code § 8220).

Protecting Your Trust From the Start

The best way to avoid trustee misappropriation is to take proactive steps at the outset:

• Choose a Trustworthy Trustee: Select someone you trust implicitly and who has a strong financial background. Consider a professional trustee, such as a bank or trust company, if you don’t have a family member or friend you feel comfortable entrusting with your assets.
• Include a Successor Trustee: Name a successor trustee in case your first choice is unable or unwilling to serve.
• Grant RUFADAA Powers: Ensure your trust explicitly grants your trustee powers over digital assets, as effective 2025, California law (CPC § 871) was expanded to grant fiduciaries power over digital accounts; however, you must still grant explicit RUFADAA powers in your Will or Trust to bypass federal privacy blocks.
• Regularly Review Trust Administration: If you are a beneficiary, stay informed about the administration of the trust and ask questions if you have any concerns.

While California allowed temporary remote witnessing during the pandemic, the law (CPC § 6110) has reverted to requiring strict simultaneous presence; remote signatures are generally invalid for Wills unless they meet the narrow ‘Electronic Will’ standards of AB 298. And if there’s a signature defect, the court may validate the Will if there is ‘clear and convincing evidence’ of the testator’s intent (Probate Code § 6110(c)(2)), but this is not guaranteed.

What standards do California judges use to determine a will’s true meaning?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

When a will is drafted with California probate review in mind, it becomes a stabilizing roadmap rather than a source of conflict. Clear intent, proper authority, and compliant execution protect both families and estates.

Resources for Legal Standards & Probate Procedure

• Escondido Local Rules: San Diego Superior Court – Probate Division
  Access the essential “Local Rules” (Division IV) effective January 1, 2026. This includes mandatory e-filing procedures, current Probate Examiner notes, and Local Rule 4.4.5 regarding remote appearance requirements (via MS Teams) for non-evidentiary hearings.
• Attorney Verification: State Bar of California
  The official regulatory body for California attorneys. Use this to verify a lawyer’s “Certified Specialist” status in Estate Planning or to access 2026 guidelines on the ethical handling of Client Trust Accounts (IOLTA).
• Self-Help & Forms: California Courts – Wills, Estates, and Probate
  The Judicial Council’s official portal. It includes the updated 2026 forms for the $208,850 personal property threshold and the $750,000 “Primary Residence” simplified transfer procedure (AB 2016).
• Federal Estate Tax: IRS Estate Tax Guidelines
  The authoritative federal resource for estate and gift tax filing. It reflects the 2026 “OBBBA” permanent exemption of $15 million per individual, replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.