RALEIGH - Peatrice L. Alston wanted to take care of her three children after she was gone, so she named them as beneficiaries of her life insurance policy.

More than $150,000 thus went to the children when the 23-year-old assembly line worker, nicknamed "Peaches," was gunned down by her estranged boyfriend in August 2000.

But when a lawyer was assigned to take over the management of those accounts in 2005, she found the inheritance had dwindled to a mere $6.50.

Now, an insurance company has sued the Wake County clerk's office, alleging that it failed to notice that most of the children's money had been spent by their caretakers and grandparents.

Guardianship bonds that would be worth $67,000 each once they matured were put into each child's trust account, who were 7, 6 and 2 when their mother died Aug. 6, 2000, in the parking lot of a Wake Forest convenience store. Maternal grandparents Benjamin and Lucy Massenburg took the two young girls and boy into their Wake Forest home and also began handling the trust accounts under the intended oversight of the Wake County Clerk of Court.

Now the Hartford Fire Insurance Co., which had to replace most of the diverted funds, is suing the Office of the Wake County Clerk of Superior Court to recoup more than $110,000 in losses. Filed in December, the lawsuit accuses an assistant clerk of failing to make sure the money was being handled properly by the Massenburgs.

The assistant clerk failed to double-check the figures provided by the Massenburgs, said Brian Darer, an attorney representing the insurance company.

Lorrin Freeman, the Wake Clerk of Court, said the trust accounts were handled in 2001 before she took office in December. The clerk's office, by law, is required to monitor trust accounts of minors who receive money through court actions. The oversight includes reviewing yearly statements that are submitted by the trustees of the accounts to make sure the children's funds are being protected.

The lawsuit was referred to the N.C. Attorney General's Office, which will represent the state agency.

The shooting that killed Alston also injured a Wake Forest police officer who responded after Alston told a convenience store clerk she was scared of her boyfriend, Ronald Williams. Williams was upset over the possibility that Alston would keep him away from their two children. A bullet that struck Alston's neck went on to hit one of the officer's hands. Three others died when an ambulance transporting the Wake Forest officer to a Raleigh hospital struck a car that had veered into its path.

After a 2001 trial, Williams, the father of two of Alston's children, was sent to state prison for life.

The Massenburgs, meanwhile, took in the children -- now 14, 12 and 9 -- and have been dedicated to raising them, said John Orcutt, an attorney representing the Massenburgs in bankruptcy filings. The money, though transferred to Lucy Massenburg's personal account, was used for the benefit of the three children.

"The money still would have been used for the kids, but it would have been better handled," Orcutt said.

The Massenburgs declined to comment.

After the Massenburgs failed to respond to several requests from the clerk's office to provide account statements, attorney Leslie Fritscher was appointed as a guardian to the children's finances in February 2005.

She looked at bank statements and found that in three years' time the accounts had dwindled to $6.50.

The clerk's office is responsible for auditing the accounts, and Fritscher said she was surprised to see that no checks were done in the case of Alston's children.

"The clerk's office on the whole does an excellent job of looking after the ward's interest," Fritscher said. "This is the exception and not the rule."

Hartford Insurance replaced most of the money, which will be held in trusts until the minors turn 18.

(News researcher Brooke Cain contributed to this report.)