Discovering that a relative may have taken money from your trust is troubling enough. Learning that the same person is using trust assets to pay the lawyers defending her can feel like a second financial injury.
Is that legal? The answer depends on the trust document, applicable state law, the nature of the legal work, and whether misconduct has been established. A trustee may sometimes use trust funds to defend legitimate decisions made in administering the trust. But that authority is not a blank check to make beneficiaries finance the consequences of proven theft or other serious misconduct.
The essential distinction is between an allegation and a finding. An accusation alone does not establish that the trustee stole money. At the same time, beneficiaries do not necessarily have to wait until the litigation ends to ask a court to protect the remaining assets.
Trust Money Is Not the Trustee’s Personal Money
A trustee manages property under the terms of the trust and owes fiduciary duties to its beneficiaries. Being appointed trustee does not make the trust’s assets available for personal spending.
Trust administration does involve legitimate expenses. A trustee may need lawyers to interpret the trust, address tax issues, handle transactions, prepare an accounting, or defend actions taken in carrying out the trustee’s responsibilities. Reasonable legal fees properly incurred for those purposes can generally be paid from trust assets.
The problem arises when legal services primarily protect the trustee’s personal interests rather than support proper trust administration. A trustee’s ability to hire counsel does not automatically establish that every legal bill should be charged to the trust. Courts may examine the work performed, its purpose, its reasonableness, and the trustee’s conduct.
Family status does not change that analysis. An aunt, sibling, or parent serving as trustee has fiduciary responsibilities just as a professional trustee does.
An Accusation Does Not Automatically Bar Payment
Trustees can face unfounded claims. A beneficiary may disagree with an investment decision, a distribution, or an interpretation of the trust without demonstrating a breach of duty.
For that reason, legal expenses incurred in defending proper administration may qualify for payment or reimbursement from the trust. Whether fees may be paid while the case is pending depends on the governing law, trust provisions, and any court orders. The ultimate outcome may also affect whether the trustee can retain that reimbursement.
Beneficiaries should therefore avoid assuming that payment of defense fees proves another theft. The better question is whether those payments are authorized, reasonable, and properly chargeable to the trust.
Where the allegations involve personal withdrawals, concealed transactions, or other serious misconduct, beneficiaries can ask counsel to seek court review of the payments. Depending on the circumstances, they may request restrictions on further spending, disclosure of legal expenses, or other protective relief.
Proven Misconduct Can Make the Trustee Personally Responsible
The analysis changes significantly when a court finds that a trustee misappropriated funds or otherwise breached fiduciary duties.
A court may require the trustee to restore losses through a surcharge, meaning personal financial liability for harm caused to the trust. In New Jersey, the statute governing damages for breach of trust generally makes a trustee liable for the greater of the amount necessary to restore the trust to the position it would have occupied without the breach or the profit the trustee obtained from that breach.
Improper defense expenses may also become part of the recovery. In the New York decision Matter of Kaskawits, the court denied payment from the trusts of legal fees incurred defending egregious trustee misconduct. The court also imposed a surcharge that included certain fees incurred in establishing the misconduct and recovering funds.
That does not mean every unsuccessful trustee must repay every legal bill, or that beneficiaries automatically recover their own attorney fees. Fee awards depend on the applicable law and circumstances. Beneficiaries should understand that distinction before assuming litigation will pay for itself.
What About a Criminal Defense?
A criminal case raises additional concerns because the trustee is defending against potential personal criminal liability.
Beneficiaries should not assume that trust language authorizing the hiring of attorneys also authorizes payment for a criminal defense involving alleged theft from the trust. Such payments warrant careful review of the trust, applicable law, and any court orders.
Nor should a trustee assume that an indemnification provision permits unlimited spending. Provisions protecting fiduciaries from certain expenses do not eliminate judicial scrutiny of intentional wrongdoing or improper charges against trust assets.
Whether a payment is unauthorized, recoverable, or itself evidence of further misconduct requires a specific factual and legal analysis.
What Beneficiaries Should Do
The first practical step is to obtain the trust document and preserve available evidence. Account statements, distribution records, communications, and records of legal payments can help identify what happened and whether the remaining assets are at risk.
A formal accounting may be necessary. Accounting allows the trustee’s receipts, disbursements, distributions, and expenses to be examined rather than leaving beneficiaries to rely on explanations without supporting records.
Counsel can then evaluate whether to request an accounting, challenge legal expenses, seek the trustee’s removal, or pursue recovery of missing funds. If assets are depleted, emergency relief may be appropriate. Requests to freeze assets or restrict spending require supporting evidence and are not automatically granted simply because misconduct is alleged.
Beneficiaries should act promptly, but thoughtfully. Delay can make records harder to obtain and recovery more difficult. Threatening messages or unsupported public accusations can distract from the evidence and complicate an already difficult dispute.
Accountability Is the Key
The guiding principle is accountability. A trustee may have a legitimate right to use trust assets for reasonable legal expenses connected with proper administration. That right does not provide unrestricted permission to spend beneficiaries’ money defending proven wrongdoing.
When theft is suspected, the goal is to establish the facts, protect what remains, and obtain appropriate court oversight. Clear records and timely legal action are often the difference between identifying a loss and actually recovering it.
Barry E. Janay, Esq., is President and Managing Attorney of The Law Office of Barry E. Janay, P.C., a New York and New Jersey firm handling trusts, estates, business law, and litigation.
This article provides general information and is not legal advice. Trustee liability, payment of legal fees, and available remedies depend on the trust document, applicable state law, and the circumstances of the case.
Barry E. Janay, Esq. is a seasoned New York and New Jersey attorney with over 20 years of legal experience, focusing on estate planning, probate, business law, and complex legal matters. As the founder of The Law Office of Barry E. Janay, he provides strategic, results-driven legal guidance to individuals and businesses navigating high-stakes decisions.
Barry has served as senior counsel and general counsel across multiple industries, bringing deep expertise in regulatory compliance, contracts, and corporate strategy. Known for his direct, no-nonsense approach, he helps clients resolve legal challenges efficiently while protecting their long-term interests.
He is admitted to practice in New York, New Jersey, and multiple federal courts, and has been recognized for his professional excellence and client-focused advocacy.
