Taxation & Estate Planning

Foreign Trusts Allege N.Y. Lawyer 'Shamelessly Looted' Millions From Bank Accounts

By Juan C. Antúnez

A trustee's duty to inform and report to beneficiaries is fundamental to the trust relationship. When that system breaks down, things can go bad really fast, a point that comes up again and again every time the press reports on some trustee getting caught stealing trust funds.

And that's apparently what happened again in the case reported on in Foreign Trusts Allege N.Y. Lawyer 'Shamelessly Looted' Millions From Bank Accounts. In the excerpt below note how the breakdown in the trustee reporting/accounting regime is at the heart of the accusation of theft.

The owners of five Liechtenstein-based trusts have sued a New York lawyer with 60 years experience in international estate planning, alleging he "shamelessly looted" more than $15 million from the clients for longer than a decade.

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The suit alleges that funds were embezzled between January 1997 and December 2007. The five plaintiffs, Establishment Finapart, Establishment Figest, Establishment Gour-Sande, Establishment Elatia and Establishment Elatia, accuse Munyan of "using a Byzantine system of trusts and offshore companies for his own personal use." It alleges he diverted assets from the five Liechtenstein trusts to make payments to Riad's accounts and to pay Kinbrace for his personal use, and that he diverted plaintiffs' funds to pay his American Express accounts.

In Establishment Finapart v. Munyan, No. 0960110 (New York Co., N.Y., Sup. Ct.), Feldberg alleges that Ritter and Meier were directors on the trusts' board of directors and had an obligation to prepare annual financial statements. Instead, "Ritter and Meier gave Munyan the keys to the establishments and, by extension, the assets they controlled, and turned a blind eye as Munyan drained the establishments' coffers."

But what about confidentiality?

If you've got your litigator hat on it makes perfect sense to impose reporting duties on trustees. But my estate planning clients look at me like I'm some kind of Communist when I tell them their children (and perhaps even grandchildren!) will be entitled to annual trust accountings (plus all the other disclosure rights beneficiaries get under Florida law [click here]) once they fund that new irrevocable trust we've been talking about for the last six months.

Apparently I'm not the only one whose encountered this reaction because there's a fix built right into Florida's new trust code. Under F.S. 736.0306 a settlor can appoint or designate a person to represent and bind a trust beneficiary or to receive notices, information, reports and accounts on the beneficiary's behalf. This section, which has no counterpart in the Uniform Trust Code, contemplates that the designated representative could be appointed directly by the settlor or by others (such as a committee) pursuant to a process set out in the trust instrument. Presto! confidentiality preserved.

By the way, some really smart people out there think this "designated representative" idea may not be such a good thing. In The Trustee's Duty to Inform and Report Under the Uniform Trust Code, author and Denver, Colorado, trusts-and-estates attorney Kevin Millard writes about a similar statute adopted by the District of Columbia. The following critique would apply to F.S. 736.0306 with equal force:

[A] troubling aspect of the District of Columbia surrogate notice provision is that it does not give the surrogate any standing or authority to enforce the trust on behalf of the beneficiaries. If notice or information provided to the surrogate discloses a potential claim against the trustee for breach of trust, what is the surrogate to do? The statute gives the surrogate no express authority to pursue action against the trustee to redress a breach of trust. Presumably, the surrogate should notify the beneficiary of the potential breach and let the beneficiary decide whether to pursue action against the trustee, but passing the notice through the surrogate's filter may effectively prevent the beneficiary from pursuing a claim. If the surrogate, through ignorance, lack of sophistication, or simple mistake, fails to notify the beneficiary of a potential claim, the beneficiary may never learn of the claim or may learn of the claim only after the statute of limitations has run. Additionally, it appears that the beneficiary would have no recourse against the surrogate for failing to inform the beneficiary of the claim unless the beneficiary can show that the surrogate did not act in good faith.

Full post as published by Florida Probate Litigation Blog on April 17, 2009 (boomark / email).