A trust is a specific type of fiduciary relationship in which one party holds legal title to property, for the benefit of named individuals. A trust occurs when an individual (known as the “trustor” or “settlor”) creates a legal relationship by giving another individual (known as the “trustee”) control over their property or assets. Control is turned over to the trustee for the benefit of a third party, known as a “beneficiary.”
Once a trust has been established, the trustee has a fiduciary duty to act in the best interest of the trust and its recipients, the beneficiaries. This constitutes one of the most common reasons why trusts are created: to ensure the safekeeping of some sort of property, for the benefit of another person or party.
There are many different types of trusts. Although each form of trust involves separate procedures for their creation as well as the responsibilities of the trustee, there are some basic elements that all trusts must contain in order to be considered valid.
Additionally, the requirements for forming a trust vary by state. However, the following requirements are typically necessary:
- Settlor Capacity: In order to create a valid trust, the settlor must possess the proper mental capacity to create the trust. What this means is that they must intend to create a trust expressed with any necessary formalities of their state, such as the trust being made in writing;
- Identifiable Property: Trust property is also known as “trust res,” and must be specifically identifiable. This means that there must be a sufficient enough description of the property to know what property is to be held in trust;
- Identifiable Beneficiary: Generally speaking, the beneficiary or group of beneficiaries must be sufficiently identifiable. Meaning, they must be able to be determined at the time the trust is formed. However, in cases such as those involving charitable trust, this requirement is often not necessary; and
- Proper Trust Purpose: The trust that is being formed must be proper. This means that the trust cannot be created for an illegal reason. An example of this would be how a person cannot create a spendthrift trust and hold the property in their own name for their benefit, simply to avoid creditors reaching their assets. Courts will usually hold that such trusts are invalid.
Generally speaking, all trusts in the United States are presumed to be irrevocable; unless, of course, the trust instrument otherwise states that the trust is revocable. However, this is not true in Texas, Oklahoma, or California. In these specific states, trusts are generally presumed to be revocable, unless they are specified as being irrevocable.
There are many disputes that may arise in connection with a trust, as will be discussed further. Trust dispute litigation is a civil lawsuit filed in probate court with the intention of resolving any disputes related to the trust in question.
What Are Some Common Types of Trust Disputes?
In a trust arrangement, the property is first transferred to a designated trustee, who then holds the property or assets “in trust” for a specified amount of time. Once this time has passed, the trustee is responsible for transferring the property or assets to the intended beneficiary. As such, a trust dispute may arise where there are any disagreements regarding the distribution of property as dictated in a trust.
Generally speaking, there are usually certain conditions attached to how the property is to be distributed. As such, many trust disputes involving property arise because of that fact. An example of this would be how the trust creator may include instructions that the property is to be held in trust until the beneficiary reaches the legal age of inheritance, which is usually eighteen years old. The more complex the conditions, the more likely it is that a legal dispute will arise involving the property being distributed.
Disputes that commonly arise in regard to trusts can generally be reduced to two categories. The first is disputes involving beneficiaries disagreeing over the construction of the trust. The second is disputes regarding how the trustee is handling and administering the property or assets assigned to the trust. One of the most common types of trust dispute under this category would be the misappropriation of trust funds.
Some other common types of trust disputes include:
- Whether the trustor had legal capacity to create the trust in the first place;
- Whether the trustor was pressured or coerced to form the trust, or was under undue influence; and
- Whether the trustor was affected by some sort of fraud, or if their signature was forged.
In terms of the mismanagement of the trust by the trustee, an example would be how the trustee may have failed to provide accurate accounting records of the assets and property held in the trust. Or, they improperly divided and distributed the property or assets to the beneficiaries. Another common issue can arise if the trustee mixed their personal assets with the property that was in the trust, or did not follow the exact instructions provided by the trustor for managing the trust.
What Are Some of the Remedies for Trust Disputes?
There are many different remedies intended to resolve trust disputes. Some of these resolutions are only available according to the laws of each state, while other conflicts can be resolved by the trust’s beneficiaries coming to a majority vote.
More serious disputes may need to be resolved in court, or by using an Alternative Dispute Resolution (“ADR”) method. ADR is frequently recommended as an option for resolving trust disputes, as it works to avoid litigation. In ADR, the disputing parties agree to be bound by the decision of an independent and impartial third party. These conferences generally encourage parties to settle their dispute without going to trial; as such, ADR is generally less formal, less expensive, and less time-consuming than litigating the dispute.
Disputes involving a trustee’s mismanagement of a trust are often resolved by first removing the trustee from their position. The trustor then selects a replacement to become the new trustee. Alternatively, a judge may order a constructive trust. A constructive trust can counteract the trustee’s initial mismanagement of the trust. Additionally, if a court finds that a trustee used assets from the trust to their own personal benefit, the trustee may be held liable for and be ordered to fully reimburse the beneficiaries.
Finally, if a judge finds that a trust was formed under duress or fraud, the court may decide to fully or partially void the trust. The same could apply if the trustor did not have the legal capacity to create the trust being disputed.
Can a Trust Be Contested? What Are the Steps to Contest a Trust?
Contesting a trust is similar to contesting a will. Conflicts over what a trust says are referred to as trust contests. To contest a trust means to challenge the authority or validity of the trust, as well as its provisions.
Some of the most common examples of will and trust contests include:
- Disputes concerning which family member is entitled to what specific property;
- Disputes regarding the amount of money to be distributed to a specific person;
- Conflicts over specific items; and
- Conflicts as to whether a person is actually a beneficiary.
There are several legal arguments or grounds that allow a person to contest a will or trust. As always, these can vary from state to state. Generally speaking, these arguments or grounds include:
- Mistakes or errors, which are sometimes proven and clarified by other documents authored by the decedent;
- Ambiguous language;
- Lack of mental capacity, as in the trust’s creator was not sound of mind when creating their document; and
- Fraud or duress, if it is believed that the trust was created under fraudulent conditions or the threat of harm.
Contesting a will or trust generally begins with filing a lawsuit with the probate court. This could involve submitting various documents highlighting the reasons for contesting the trust. It is imperative that the person contesting the trust state the exact grounds for contesting. There may be filing deadlines associated with contesting a trust, as well as state-specific guidelines that govern the process.
Do I Need a Lawyer to Help with My Trust Dispute?
If you are involved in any sort of trust dispute, you should immediately consult with a local probate lawyer. An experienced and local estate planning attorney would be best suited to understanding your state’s specific laws regarding trusts, wills, and estates. As such, an attorney can help you understand your legal rights and options according to your state’s specific estate code and guidelines.
Additionally, an experienced attorney can ensure that the trust is properly drafted to avoid future legal disputes. Finally, an attorney can also represent you in court, should someone contest the legality of the trust.