Summary of Issue
Attorneys representing a family member being threatened with litigation from siblings, step-siblings, and even grandchildren contacted us for some forensic accounting help. The issue was the handling of an estate starting with the death of one parent over 25 years ago and the death of his wife (not the mother of his children) five years ago. The suspicion was fairly typical: estate assets had been hidden and stolen. The law firm retained Arxis to do an independent review to see if there was any truth to the accusations.
Why the Suspicion?
The family involved in this matter had a long history of disputes and distrust stemming from the husband’s multiple marriages and children from those marriages. When the father passed away a quarter of a century ago, certain of his assets transferred to his wife and specified assets were placed into a separate trust that was to provide for the maintenance of his wife for her lifetime. To the extent anything in the trust remained at his wife’s death, the assets would be transferred to the beneficiaries of the trust. A few years after the wife’s death, distributions were made from the trust as directed. But the distributions were not as much as the beneficiaries thought they would be or should be. Thus, began questions that led to suspicions and resulted in legal accusations and lawyers. The original questions were not readily answered because of a scarcity of records and the lack of financial sophistication of the family member who became trustee of the trust. Additionally, our client had only assumed “trustee” status and access upon the second death.
Arxis Analysis
Somehow, analysis needed to be done to meet the request of our client to establish whether there were missing assets or other financial malfeasance involving the trust assets and income. The trustee provided every document that could be located from the family home. This resulted in thousands of pages that needed to be sorted, indexed, and scanned. The scanning process allowed the documents to be searched with data at certain dates isolated. This process also affirmed that the lack of complete transactional records was a simple reality that could not be changed and we would have to work around the many holes in the record.
There were three relevant dates to address. The value of assets at the death of the husband (25 years ago), the value of the assets at the date of death for the wife (trustee), and then the current value of the assets. The lack of records precluded the ability to identify the value of the trust assets at death. The estate was small enough that an estate tax return was not required or filed. In the alternative, a listing of assets and debt was assembled as of a date within five years of the husband’s death. The same was created from records as of the date of death of the wife, while the current date was much easier. These three balance sheets were presented side-by-side showing the net change in assets over the approximate twenty-year period and in the five years since the wife passed away.
Result
The side-by-side presentation was compelling. In the first twenty-year period, the net assets of the trust actually increased, and then dramatically increased in the last five-year period. The bank and investment accounts that had gone to a zero balance had been replaced by other bank and investment accounts that had done quite well. Beneficiaries who had seen only part of the picture were understandably concerned about the seeming “disappearance” of money. Seeing the whole picture on one piece of paper settled the matter.
Unfortunately, from a professional fees perspective, the amount of money that was at issue ended up being only $200,000; the legal and accounting costs were probably about half that amount. Although the disputed amount was relatively low, the investigation resolved the issue, and family relationships now have an opportunity to heal.
It should be noted that this case is typical of similar matters involving many millions of dollars. These costs would have likely been unnecessary if there was not a state of mistrust and lack of cooperation amongst the trustee and beneficiaries, yet this is actually quite common in probate litigation. In such situations, the involvement of legal and accounting professionals is often the only effective remedy to adequately resolve these contentious disputes.
