What happens when Trustee steals from Trust? In short, you file petition to remove the trustee and you sue them in superior court for damages. Here’s a case study.
If you are reading this, you may be in a similar dilemma. We can discuss whether we can help.
Background:
Randolph County, NC: Nancy Young died in 2015, leaving over $1.2 million in assets to her two children: Kevin and Susan Young. Each received over $600,000 in inheritance. Nancy left Kevin’s share to be held in trust, and placed Susan Young (a/k/a Susan Braxton) to be Kevin’s trustee.
Susan served as the trustee of Kevin’s trust from 2015-2025.
Kevin was in prison from 2019-2024. That doesn’t disqualify him from his rightful trust inheritance. During this extended stay courtesy of the State, Susan Young sold trust assets and kept the proceeds for herself. From 2019-2022, Susan transferred trust funds to her personal bank account, wrote checks to her two adult children, paid to have her home remodeled using Kevin’s trust funds, kept her company, Salt and Stitch Co., LLC (see also So & Sew Boutique in Morehead City), afloat using trust funds, and completely depleted the trust.
The exact extent of Susan’s theft is hard to calculate. However, it is certain that Susan embezzled at least $605,000 from the trust in a 3-year period.
The Warning Signs:
There were ample warning signs that Susan Young (Susan Braxton) could not be trusted to manage Kevin’s money before Nancy’s death.
In the years preceding Nancy’s death, Susan filed for bankruptcy, moved into Nancy’s home, needed Nancy to pay off extensive credit card debt, and seemingly pressured Nancy to deed her house to Susan one week before her death. All signs pointed to the conclusion that Susan was not trustworthy or able to serve as trustee. These various red flags should have guided Nancy and her attorney to appoint an independent third party, not a spendthrift leach.
There were even more warning signs after Nancy died.
In the couple of years following Nancy’s death, Susan quickly drained her $600,000 plus inheritance. Subpoenaed records from her financial advisor form this time show their concerns and notes to Susan that she was quickly running out of money and needed to make changes.
These concerns were amplified by the financial advisors when Susan began requesting “loans” from Kevin’s accounts. Seeing the obvious red flags, the financial advisor quickly informed Susan that she owed Kevin fiduciary duties, is not allowed to use Kevin’s money for her own benefit, and would not be allowed to withdraw money from Kevin’s accounts without proper documentation of expenses. The financial institution recorded “Susan called me last Friday saying that she wants to take a loan from the trust for 15k and that Kevin approved it… I called her back this morning to explain that Trustees have a fiduciary duty to protect and preserve the assets for the beneficiary at all costs and under no circumstance can a trustee take a loan from a trust account that they have control over. I also explain that we will need receipts and / or bills to justify any additional withdrawals from the trust.”
What did Susan do to get around the gatekeeper?
Susan, quickly running out of money and being blocked from stealing Kevin’s money, closed Kevin’s account and transferred it to a new institution where she immediately continued siphoning his funds. Between late 2019 and mid-2022, Susan withdrew approximately $450,000 from Kevin’s accounts at the new institution.
How We Proved the Case:
Through meetings with our client and preliminary investigations, we pieced together most of Susan’s wrongdoing over the years even though she repeatedly refused to give an accounting to Kevin. We had enough to draft the complaint and get the case started. We also sent a formal demand for an accounting and waited for a required response, which never came. That was our initial set-up.
The case proceeded on 2 Fronts:
1) Petition to Remove Trustee Susan Young &
2) Superior Court Litigation to seek recovery of assets for Susan Young’s breaches of fiduciary duties.
When drafting our Complaint, we had limited information. Susan Young refused to provide an accounting or share any information about the Trust with Kevin Young. We had a rough idea of the extent of Susan Young’s theft, but didn’t have a specific number. To deal with this uncertainty, we pled different values of what Susan Young took for her own benefit from the Trust. When doing so, Susan Young’s responses laid the groundwork for our later strategy. In the Complaint, we made the following allegations:
69. From 2019 through 2022, Defendant Trustee distributed over $450,000 from the Trusts to herself for her own benefit.
In response to these allegations, Susan Young denied the latter two, but pled the 5th Amendment to the first.
69. Defendant, on the advice of counsel, pleads the Fifth Amendment privilege in response to the allegations contained in Paragraph 69 of the Complaint.
In North Carolina, in civil cases, the Court is allowed to make adverse inferences against a party who claims the 5th Amendment in lieu of answering an allegation. What this means is that by outlining Susan Young’s theft in detail, we would be able to show the Court her refusal to answer and have the Court infer that, had she answered, it would have been bad for her.
Susan Young pled the 5th Amendment in response to most allegations in our Complaint and we knew she would do the same for discovery. Knowing this, we prepared to send detailed discovery requests to Susan. However, in order to do so we needed supporting documents.
The most important starting point on a case like this is getting records, particularly financial statements. However, this always has its challenges.
In this case, Susan cut off communication with her brother and did not provide accountings to him. Kevin had no idea where the trust had financial accounts. Fortunately, Kevin remembered that his mother had accounts with Raymond James and this provided a very important starting point. We were able to subpoena records from Raymond James, which led us to subpoena Edward Jones once we learned the accounts were transferred there. Ultimately, we sent subpoenas to several banks and found where there were financial accounts.
From these financial records we were able to trace and follow most of Susan’s self-dealing.[1] In these records, we were able to see the checks and bank transfers Susan made for her benefit, along with those made to So & Sew a/k/a Salt and Stitch Co. and Susan’s children.
However, showing that these transfers were made is not enough. As the Plaintiff, we had the burden of proof to show that these funds were misappropriated, and the transfers were not legitimate.
Armed with thousands of pages of financial records, we carefully crafted discovery requests and demands. We put Susan Young and her attorneys in a difficult place where they couldn’t deny answers but admitting could subject her to criminal prosecution. We sent Susan Young’s attorneys documents supporting each of our requests that highlighted Susan’s egregious misconduct.
Faced with the overwhelming evidence, Susan Young’s only choice to plead the 5th Amendment and refuse to answer.
Next, Attorney Morris deposed Susan Young. The goal was to eliminate possible explanations for payments Susan Young made to her children and businesses. Without being too direct, which would have clued her in on my strategy and forced her into refusing to answer, our attorney was able to eliminate all legitimate reasons Susan could have had for why her children and companies, who aren’t beneficiaries, received money from the Trust.
At this point, the set up was complete. With the evidence in hand and Susan Young’s testimony from her deposition, attorney Morris scheduled a Summary Judgment motion and proceeded to Court. He presented bank records, case law, discovery responses, and Susan Young’s deposition transcript to the Judge to prove Susan Young stole and misappropriated over $605,000.00 from the Trust. The crux of our argument was to focus on what Susan Young would answer and what she wouldn’t, and that the Court should consider what she refused to answer to be evidence against Susan.
The Judge granted Kevin Young’s motion and awarded Kevin Young a $605,000.00 judgment against Susan Young.
What’s Next:
In the Removal, Susan Young was removed as Trustee. The superior court case was won for Kevin. Kevin received a $605,000.00 judgment against Susan. That’s it, right? Kevin will be fully reimbursed by his sister, won’t he?
Unfortunately, it is doubtful the full amount will be recovered. Mr. Morris’ boss has a saying, a judgment is only as good as what can be collected. Some people are what we consider “judgment proof,” meaning that there’s no real difference between a $5,000 judgment and a $5,000,000 judgment against them. If a person has no assets, enforcing the judgment will be nearly impossible.
So, what do we do?
Now begins the Post Judgment Collection Process: We will transfer the judgment to the county Susan lives and then serve what’s known as a Notice of Right to Have Exemptions Designated on Susan, giving her 20 days from service to file to have certain property she owns be exempt from being used to satisfy the judgment.
Once these deadlines pass, we will have the Clerk of Court issue a Writ of Execution for the value of the judgment plus any interest it has accrued. This Writ is then delivered to the Sheriff who will search for Susan’s assets. The Sheriff typically searches for bank accounts, vehicles, and real property. If the Sheriff finds vehicles or real property, he can seize it and sell it at auction and use the proceeds to pay towards the judgment. (note that the Sheriff will require fees up front for the collection, storage, and auction of property and will keep a percentage of the sale).
While it’s not likely that Susan Young (aka Susan Braxton), a notorious spendthrift with poor money management skills, has assets that can be used to cover this judgment, fortunately the judgment against her will last for 10 years. What this means is that several years down the road Kevin can apply for another Writ of Execution and have the Sheriff search for more assets.
Lessons to be Learned:
- Choosing a trustworthy trustee is exceedingly important.
- Don’t put a poor money manager in charge of assets. It’s a recipe for disaster.
- When you are not getting accountings from the trustee (ask for them, by the way), you have problems.
- Lack of Transparency by the trustee / fiduciary agent is a big warning sign
- If the trustee disagrees with interpreting the plain terms of the trust, you got a problem
- If trustee borrowed money from the trust or grantor, there are issues
- If trustee stops communicating, you have a problem
- AND WHEN THE ABOVE OCCURS: Act Promptly! Contact a fiduciary litigation attorney like our firm so maybe some of the assets can be preserved. Earlier is better.
Written by Austin Morris
Call Kirk Sanders to pursue your fiduciary litigation violations 336-510-4000
[1] It’s important to request everything when sending a subpoena. For example, normal bank statements will show a withdrawal, a check number, a date, and an amount for checks. Without copies of the checks, these statements provide little meaning.