What Are the Most Common Reasons for Trust Disputes?

Perhaps the most common reason for a dispute in a trust comes when some fiduciary agent related to it fails to carry out their duties. This could be the executor of an estate, a trustee, or an agent with power of attorney. This can happen when the fiduciary fails to provide a proper accounting of what they have been doing, for example. It can also be an issue if the assets of a trust are not divided properly, are not properly invested, are used for the personal benefit of the fiduciary, or if the fiduciary fails to pay and file tax returns correctly.

These are serious breaches of duty, but it is important to understand that they can happen inadvertently as well as purposefully. Sometimes, the problem is not an immoral or unethical fiduciary but simply an incompetent one. This makes it very important to choose the right person to manage a trust in the first place, which a lawyer can help you to do.

In some estates, beneficiaries are paid from separate trusts, and each trust has a single primary beneficiary. But if a trust has multiple primary beneficiaries who must all be paid out of the same pool, sometimes known as a “pot trust,” there can be serious disputes over how that pot gets divided once it’s time to do so.

There are good reasons to have a single trust with multiple beneficiaries, but there’s also plenty of room here for disputes. It’s important to have a trustee with both legal experience and also a clear understanding of the desires of the estate holder in the first place, who can ensure that the distribution of these benefits does not result in hurt feelings, disputes, or even litigation. The key is making sure that everyone involved feels that they are being treated fairly or at least fully understands what to expect. It’s also important to have legal advice when these trusts are created so all benefits and drawbacks can be properly weighed before a trust goes into effect.

There are many reasons for contesting a trust. One of the beneficiaries (or someone who believes they should be a beneficiary) may believe that the trust is not legally valid for some reason. This could be because they believe it was not properly established, that the person establishing it didn’t have the awareness and understanding of what they were doing to do it properly, or that someone had undue influence over them at the time. A beneficiary may also challenge whether a trust was set up according to the actual intent of the creator or may challenge whether the interpretation of some provision in that trust is accurate. Sometimes these challenges are based on legitimate concerns, and sometimes they are simply an attempt by an angry beneficiary or potential beneficiary to try to get something they believe they deserve.

It’s common in these cases to raise questions over whether the person who made the trust had the legal capacity to do so. Capacity involves both knowledge and awareness. In other words, the person had to know what they were doing and to be aware of the consequences of their decisions. The capacity required to create a trust, particularly a standalone trust, is a bit higher than that required to create a regular will. That’s because a will only requires a person to know what they have and who they want to give it to, while a trust requires them to actually have the capacity to entire into a binding legal contract.

Another common question in this situation is whether someone was influencing the person who created the trust. It’s not uncommon for those who feel aggrieved by the terms of the trust to accuse someone else in the family, or possibly a friend or professional, of exercising an inappropriate level of influence. In some cases, the accusation goes even further: the alleged influencer is believed to have hidden details from the creator so they really didn’t understand what they were signing. In these situations, and anything like them, a trust litigation lawyer can help to investigate the validity of all documents and the situation surrounding their creation.

Ideally, the lawyer chosen here will have been involved in the estate for a while and will thus be aware of the situation and what the creator of a will or trust wanted all along. A lawyer can also look at the provisions of a trust and compare them to other estate documents to see whether they seem to be consistent. If you are planning to set up a trust, it’s critical to speak with a lawyer as early as possible, and especially if you suspect you may have a family member who will not be happy with the way you intend to distribute your estate. A lawyer can do a lot to mitigate problems later with careful and proactive planning.

Whenever there are special assets involved, such as a closely held business, things can get especially complicated. It’s important to have a clear business succession plan in place to delineate who will own, control, and benefit from the company once the original owner is gone. There will also be questions about whether there are sufficient assets to fund the business needs, to pay taxes, or to otherwise keep things moving smoothly so that family support needs are taken care of.

Disputes often arise when these issues are not all considered prior to death and aspects of a trust become difficult to execute because of the complications of these special assets. There may not be any appropriate leadership to take over the business. There could be a lack of liquidity available to cover the estate tax burden on special assets that are quite valuable. There may have been enormous changes to the value of a certain asset since a trust was established, or it may be difficult to divide assets in a way that aligns with the initial intent for distribution.

The best way to deal with any of these disputes is to avoid them in the first place. An estate planning attorney can head off these problems by helping the family set up a trust carefully. But if that hasn’t been done and these disputes have already risen, a lawyer can work together with other experts, such as property valuators or shareholders, to think through the issues and develop an appropriate response.

These are just some of the ways a lawyer can be of help in these situations. Whether you are facing a trust dispute or hope to avoid one, reach out to us at the law office of Frisella Neilson, APC in San Diego, today to set up a consultation.