The Role of Forensic Accountants in Trust Litigation

Trusts are meant to protect assets for the intended beneficiaries. However, an unscrupulous or careless trustee may sometimes mismanage the trust assets or commit fraud. A forensic accountant can play a critical role in trust disputes by scrutinizing each financial transaction within the trust and identifying discrepancies. If a trustee’s wrongdoing is detected, they can help ensure beneficiaries are made whole.

What is a Forensic Accountant?

A forensic accountant is a professional who investigates financial fraud and other wrongdoing. Utilizing their financial knowledge and investigative skills, they conduct investigations into financial transactions to determine whether embezzlement, irregularities, or other misconduct occurred. Importantly, they can provide crucial support in trust litigation by gathering financial evidence during discovery, preparing a report, and providing expert testimony. They can also review the other side’s financial report — which would be shared in discovery — as well as discredit their testimony at trial.

What is a Forensic Accountant’s Role in Trust Litigation?

Hiring a forensic accountant can be vital when dealing with a complex estate — or if a trust beneficiary has strong reasons to believe the trustee is mismanaging the trust in some way. Critically, a trustee has a fiduciary duty to act in the best interests of the trust and the beneficiaries. If they fail to do so, they may be held liable for the harm they caused to the beneficiaries.

A forensic accountant can perform the detailed analysis necessary to prove that a breach of fiduciary duty or fraud has occurred in connection with the trustee’s management of the trust assets. These professionals can also help identify various other forms of trustee misconduct and wrongdoing that can lead to trust litigation, including the following:

• Negligence — In some cases, a trustee’s misconduct may be the result of negligence. A forensic accountant can establish whether the beneficiaries were harmed due to a trustee’s failure to maintain trust property, keep proper records, make prudent investment decisions, or diversify investments.
• Self-dealing — Self-dealing occurs in cases where a trustee prioritizes their own financial gain over the interests of the beneficiaries. A forensic accountant can look for red flags such as commingled assets, risky investments, lack of detail in the trust accounting, and transfers of assets to related parties. In the event self-dealing has occurred, they can quantify the damages to the beneficiaries.
• Embezzlement — Embezzlement refers to the theft or misappropriation of trust assets for the trustee’s own personal use. This type of misconduct is more severe than self-dealing and can involve criminal charges.
• Inaccurate reporting — A forensic accountant can help to obtain a proper trust accounting and ensure it accurately reflects the financial transactions. They can analyze records and trace transactions to determine whether a financial report was manipulated to deceive a beneficiary.
• Undisclosed transactions — A forensic accountant may discover financial transactions that were not disclosed to trust beneficiaries, including those that were solely for the benefit of the trustee, rather than the beneficiaries.

Forensic accountants can analyze bank statements, investment records, documents related to fund transfers, tax returns, and other financial records to trace assets and detect discrepancies. Notably, not every matter involving a trustee’s misconduct goes to trial. Even if trust litigation has been commenced, a case can be settled at any time before the judge issues a decision.

What Consequences Can a Trustee Face if a Forensic Accountant Uncovers Financial Misconduct?

If a forensic accountant discovers that financial misconduct has been committed by the trustee — or their investigation determines that a breach of fiduciary duty has occurred — the trustee could face a variety of consequences. For instance, the court could remove the trustee and appoint a new one to manage the trust. The trustee might also be ordered to pay restitution and damages to compensate the beneficiaries for any financial losses incurred due to the misappropriation. Additionally, a court may impose an injunction to prevent the trustee from taking further actions that harm the beneficiary. In rare cases involving fraud or egregious misconduct, a Minnesota court may allow a motion to seek punitive damages under Minn. Stat. § 549.20.

Contact an Experienced Minnesota Trust Litigation Attorney

If you are facing a trust dispute involving a trustee’s wrongdoing or fraud, it’s essential to have a skillful trust litigation attorney by your side who can safeguard your rights and help you navigate the court process. At Dave Burns Law Office, I provide dedicated counsel for a variety of estate litigation matters. If you would like to discuss your trust dispute, I welcome you to contact me at (612) 677-8351 or by emailing dave@daveburnslaw.com.

I represent clients throughout the Twin Cities metro area and am available to meet with clients in both Minneapolis and St. Paul. The Dave Burns Law Office hopes you find this article helpful. But please do not rely on it as legal advice. The law changes regularly and the outcome of any legal matter depends on its unique circumstances. View full disclaimer.