Elder Abuse By Beneficiaries and Trustees

The Abuse of Elders by Beneficiaries and Trustees

When we think of “elder abuse,” it is easy to assume that this type of behavior occurs only by caretakers, relatives, nursing home employees or any other individual who is tasked with assisting an elderly person with their day-to-day needs. However, elder abuse, particularly financial elder abuse, can also be perpetrated by less obvious parties, including trustees and beneficiaries. Below, our California elder abuse attorney discusses a few of the ways that trustees and beneficiaries can engage in financial elder abuse, the laws that protect seniors from it and what to do if you suspect that it is occurring.

Who Are Trustees and What Are Their Duties? Our California Elder Abuse Attorney Explains

There are three parties to a trust: the person who creates the trust and transfers money into it (referred to as a “settlor” or “grantor”), the beneficiaries (individuals who are entitled to receive assets from the trust) and the trustee (the person who manages the trust). Whenever a person transfers assets to a trust, they give up some or all of their control over those assets to the trustee, who then manages them on behalf of the trustee and for the benefit of the beneficiaries. This makes the role of the trustee incredibly important, as the trustee holds title to the assets in the trust and has the power to buy, sell, and borrow against the trust assets. As such, the law imposes a fiduciary duty upon trustees, meaning that the trustee must put the interests of the trust’s beneficiaries above his or her own interests and must avoid taking any actions that would harm the trust. Generally, the duties of a trustee include the duties to:

• Obey the terms of the trust
• Administer the trust solely in the interest of the beneficiaries
• Deal impartially with the beneficiaries
• Refrain from using trust property for his or her own profit
• Refrain from transactions that would cause a conflict of interest with the trustee’s duties
• Take reasonable steps to preserve the trust property and make it productive

Should a trustee violate any of these duties, he or she may be liable for a breach of fiduciary duty. When that breach of fiduciary duty results in financial harm to an elderly person, it can be considered a form of financial elder abuse. This is especially true in the context of revocable living trusts, in which the settlor of the trust may authorize the trustee (in these cases known as “successor trustees”) to manage his or her affairs should he or she become incapacitated.

Examples of Trustee Abuse

When a trustee breaches his fiduciary duty and that breach results in financial harm to an elderly person, it rises to the level of financial elder abuse. There are several ways a trustee can engage in this kind of abuse, including:

Fraud

Fraud occurs when an individual deliberately misrepresents facts to someone else with the intention of causing financial harm to that person. Trustees can engage in fraud when they deceive either the trust’s settlor or beneficiaries as to the true nature of a specific transaction. For example, a trustee may present an investment opportunity to the settlor or the beneficiaries and represent that it will benefit the trust while knowing that the opportunity is, in fact, a pyramid scheme.

Embezzlement

Embezzlement occurs when an individual steals or misappropriates funds that have been entrusted to him or her. Although this is a term that is most often associated with theft from employers, it can also apply in the probate setting, such as when a trustee steals cash or other assets from the trust that he or she manages. In many cases, the embezzling trustee will claim that he or she was merely “borrowing” the funds.

Self-Dealing

Self-dealing refers to transactions that confer a financial benefit upon the trustee. Because trustees are fiduciaries, these types of transactions are not permitted, as fiduciaries must place the beneficiaries’ interests above their own. A trustee could engage in self-dealing, for example, by purchasing a piece of land the trustee owns with assets from the trust.

Improper Gifts

One of the duties of a trustee is to obey the terms of the trust instrument, including instructions regarding distributions (also known as “gifts”). A trustee who takes a liking to a particular beneficiary could make an improper gift by giving that beneficiary more than he or she is entitled to under the terms of the trust.

Collusion with Beneficiaries

Collusion involves when two or more parties conspire in a secret agreement to gain an advantage over others. It can occur in the context of trustees and beneficiaries when one beneficiary colludes with the trustee to receive a greater portion of the trust assets than the beneficiary is entitled to. For example, a greedy beneficiary could offer an unscrupulous trustee a cut of the profits in exchange for an improper distribution.

Co-Mingling Assets

Co-mingling of assets occurs when the trustee mixes the trust’s assets with his or her own assets, making it difficult to determine which assets belong to which party. This can make it difficult for the trustee to make distributions to the trustees or payments to third parties.

The examples above are merely illustrative of the kinds of abuse in which trustees can engage. For more information about trustee abuse, as well as more detailed advice about your particular situation, please contact a California elder abuse attorney.

Beneficiaries Can Also Be Abusers

Beneficiaries, while they do not hold as much power over the assets in a trust as the trustee, are also capable of committing financial elder abuse. This is particularly true in the context of wills — especially where the beneficiary has a close personal relationship with the testator (i.e., the person who makes the will) and stands to benefit substantially from it. A few ways that beneficiaries under a will can commit financial elder abuse are through fraud and undue influence.

• Fraud in the inducement: Fraud in the inducement is a type of fraud that occurs when the testator voluntarily executes a will, but the will contains one or more terms that are the result of lies, deceit, or trickery. A beneficiary can engage in fraud in the execution when, for example, he or she tells the testator that one of the testator’s other intended beneficiaries is already dead, but that person is, in fact, alive. In that scenario, the beneficiary would be committing fraud in the inducement by tricking the testator into giving him or her more than the testator would have had the testator known the truth.
• Fraud in the execution: Fraud in the execution is a type of fraud that occurs when the testator is mistaken as to the true nature of the document he or she is signing. This can happen in several ways. For example, a beneficiary could tell the testator that the document he is signing is his will when it is, in fact, another document entirely. It could also occur when the beneficiary inserts additional provisions favorable to the beneficiary of which the testator is unaware.
• Undue influence: Undue influence is a more insidious form of financial elder abuse that is often much harder to detect than fraud. It occurs where the perpetrator overcomes the free will of the testator to such an extent that the testator cannot be considered to have executed the will voluntarily, as the law requires. In most cases, the person who exercises the undue influence does so to accrue more favorable benefits to themselves under the will. Elders who struggle with diminished capacity in some form or another are particularly susceptible to this form of financial elder abuse.

California Elderly Abuse Laws Protecting Seniors 

California was at the forefront of passing and implementing legislation to combat financial elder abuse and continues to take this issue very seriously. California elder abuse laws are some of the most protective in the country, and California courts take an expansive view of actions that constitute “abuse.” As such, trustee and beneficiary abuse may be actionable as financial elder abuse. 

Elders in California are protected by a variety of common law and statutory measures against trustee and elder abuse, including:

Surcharges

Once a trustee has been adjudicated to have breached one or more of his or her fiduciary duties, and that breach resulted in financial loss to the beneficiaries, a surcharge is a form of compensatory relief wherein the trustee is ordered to reimburse the trust for the financial damages he or she caused. The amount of the surcharge in any given case varies, but can include (1) any loss or depreciation in the value of the trust, (2) any profit made by the trustee through the breach, and (3) any profit that would have accrued to the trust if the loss was attributable to the trustee’s breach. The courts may also order the trustee to pay interest on these amounts in some cases.

Trustee Removal

No trust is set in stone, even so-called “irrevocable” trusts, and trustees can be removed. Many trusts even contain provisions that permit a change in trustee under certain circumstances. In the absence of a removal provision in the trust, an interested party may also petition a probate court to remove a problem trustee. California law authorizes courts to remove or change trustees in cases where:

• The trustee has committed a breach of trust
• The trustee is insolvent or unable to administer the trust
• There is hostility or lack of cooperation among co-trustees
• The trustee fails or refuses to act
• The trustee’s compensation is excessive under the circumstances

Evidence that a trustee has engaged in fraud, misappropriation, self-dealing, or any other behavior likely would be sufficient for a court to remove the trustee for breach of fiduciary duty.

Elder Abuse and Dependent Adult Civil Protection Act

The California Elder Abuse and Dependent Adult Civil Protection Act is a comprehensive statute that protects California seniors from elder abuse, including physical abuse, neglect, and financial abuse. Its scope has been expanded by several amendments and judicial decisions since it was passed and now encompasses virtually any behavior that causes physical or financial harm to seniors. The act states that financial elder abuse occurs when an individual:

• Takes, secrets, appropriates, obtains, or retains real or personal property for a wrongful use or with an intent to defraud (or both)
• Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property for a wrongful use or with an intent to defraud (or both)
• Takes, secrets, appropriates, obtains, or retains, or assists therein, real or personal property by undue influence

It is worth noting that this statute’s language is expansive enough to cover all of an elder’s property, including property held in trust, donative transfers, and testamentary bequests.

What to Do if Abuse Occurs

It may not be immediately apparent that financial elder abuse is occurring, but there are several warning signs, such as:

• Funds are missing without explanation
• Canceled checks, unpaid bills, eviction notices, etc.
• The elderly person’s living situation is substandard despite having the funds to afford proper care
• The elderly person does know what is occurring or does not understand their finances
• A caretaker exercises an inordinate amount of control over the elder’s finances
• The suspected perpetrator gives unreasonable or implausible explanations as to why funds are missing

If you suspect that an elderly person you know or love is the victim of financial elder abuse, the most direct remedy is to confront the suspected perpetrator directly. If you are not comfortable with or feel unsafe confronting the suspected perpetrator, you might want to consider conducting a behind-the-scenes investigation of the elder’s financial situation to gather evidence of wrongdoing. You should also report suspected financial elder abuse to your local county Adult Protective Services (APS) office, which will then coordinate a response with the assistance of law enforcement, if necessary.

Contact a California Elder Abuse Attorney Today

If you suspect that someone you love is the victim of abuse by a trustee or beneficiary, you should act swiftly to minimize the financial damage that could occur. For more information about any topic covered herein, please contact a California elder abuse attorney at the Evans Law Firm by calling (415) 441-8669.