Common Types of Trust Disputes and Remedies

A trust is a type of fiduciary relationship where one party holds legal title to property for the benefit of named people. When you want to create a trust, you (known as the “trustor” or “settlor”) set up a legal relationship by transferring control of your property or assets to another person (known as the “trustee”). The trustee then takes over this control and manages everything for the benefit of a third party, who we call the “beneficiary.”

Once you set up a trust, the trustee has a fiduciary duty to act in the best interest of the trust and its recipients, the beneficiaries. This represents one of the most common reasons why people create trusts, to make sure property stays safe and protected for the benefit of another person or party.

Plenty of different types of trusts are around today. While each form of trust has separate procedures for creation and different responsibilities for the trustee, a few basic elements need to be present in all trusts for them to be considered valid under the law.

The requirements for creating a trust vary by state. But the following requirements are usually necessary when you want to set up a trust.

Settlor capacity

This means that to create a valid trust, you as the settlor need to possess the right mental capacity to create the trust. In other words, you need to intend to create a trust and express this intention with any necessary formalities of your state.

Identifiable property

This means that trust property (also known as “trust res“) needs to be obviously identifiable. In other words, you need to give a good description of the property so everyone knows just what property will be held in trust.

Identifiable beneficiary

This means that usually, the beneficiary or group of beneficiaries need to be sufficiently identifiable. So you need to be able to figure out who they are at the time you form the trust. But in cases like those with charitable trusts, this requirement usually isn’t necessary.

Legitimate trust reason

This means that the trust you’re creating needs to be legitimate. In other words, you can’t create the trust for an illegal reason. For example, you can’t create a spendthrift trust and hold the property in your own name for your benefit just to keep creditors away from your assets. Courts will usually hold that these trusts are invalid.

Usually, all trusts in the United States are presumed to be irrevocable unless the trust instrument says the trust is revocable. But this isn’t true in Texas, Oklahoma, or California. In these states, trusts are usually presumed to be revocable unless they are specified as being irrevocable.

Plenty of disputes can come up in connection with a trust, as we’ll cover later. Trust dispute litigation is a civil lawsuit filed in probate court with the intention of resolving any disputes related to the trust in question.

The Main Types of Trust Disputes

Trust arrangements work in a simple way once you know the basic structure. The property gets transferred first to a designated trustee, who then holds that property or assets “in trust” for a set period of time. After this time period ends, the trustee takes responsibility for transferring the property or assets to the intended beneficiary. So, trust disputes can develop when there are disagreements about how the property should be distributed according to what the trust document says.

Most trusts come with certain conditions that dictate how the property should be distributed to beneficiaries. This setup means that many trust disputes about property happen because of these attached conditions. For example, the trust creator might write instructions that say the property has to stay in trust until the beneficiary reaches eighteen years old, which is usually the standard legal age of inheritance. The more complicated these conditions become, the more likely you’ll see legal disputes develop about how the property gets distributed.

Trust disputes usually fall into two main categories when you look at the most common scenarios. The first category covers disputes where beneficiaries disagree about how to interpret the trust document itself. The second category deals with disputes about how the trustee manages and administers the property or assets that belong to the trust. Misappropriation of trust funds represents one of the most common types of disputes you’ll see in this second category.

Some important questions usually come up when people challenge the validity of a trust. Did the trustor have the legal capacity to create the trust when they first set it up? Was the trustor pressured or coerced to form the trust or were they under undue influence or pressure from someone else? Was the trustor affected by fraud in some way or was their signature forged on the documents?

Trustee mismanagement creates another common source of disputes that you want to know about. For example, the trustee might fail to keep accurate accounting records of the assets and property held in the trust. They might also divide and distribute the property or assets to beneficiaries in the wrong way. Another common problem happens when the trustee mixes their personal assets with the trust property or when they don’t follow the exact instructions that the trustor provided for handling the trust.

Ways to Resolve Your Trust Disputes

You have plenty of ways to resolve trust disputes when they come up in your particular situation. Some of these options depend completely on the laws in your particular state, while other conflicts can be resolved when the trust’s beneficiaries come together and reach a majority vote on how to proceed.

Tough disputes may need to be resolved in court or through an alternative dispute resolution method, which most people call “ADR” for short. ADR gets recommended frequently as a preferred way to resolve trust disputes because it helps you avoid the long and expensive court battles that can drag on for months. In arbitration, one form of, ADR, the disputing parties agree to accept the ruling of an independent and impartial third party who reviews all of the evidence. These conferences help both sides work together to settle their dispute without going to trial. So, ADR tends to be much less formal, far less expensive and much less time-consuming than taking the dispute through the traditional court system.

Disputes that come up over a trustee’s mismanagement of a trust can usually be resolved by first removing the trustee from their position of authority. The trustor then selects a replacement person to become the new trustee and take over the responsibilities. Sometimes a judge may order a constructive trust instead of just replacing the trustee. A constructive trust can counteract the trustee’s original mismanagement of the trust and restore good oversight. On top of that, if a court finds that a trustee used assets from the trust for their own personal benefit instead of for the beneficiaries, the trustee may be held liable and be ordered to completely reimburse the beneficiaries for any losses they suffered.

When a judge finds that a trust was originally formed under duress or fraud, the court may choose to completely or partially void the trust agreement. The same legal principle could apply if the trustor didn’t have the legal capacity or mental competency to create the trust being disputed in the first place.

Steps to Challenge Your Trust Document

Contesting a trust works much the same way as contesting a will. When you have conflicts over what a trust document says, these disputes are called trust contests. To contest a trust means you challenge either the authority or validity of the trust document and its provisions.

You might end up dealing with a few types of disputes. Some families argue about which family member gets what property. Other common conflicts center on the amount of money that should go to a particular person. Sometimes you and your relatives disagree over specific items or you might question if someone is actually a beneficiary at all.

Plenty of legal arguments allow you to contest a will or trust, though these can change from state to state. Usually, these arguments fall into a few categories that you want to know about. You can challenge mistakes or errors, which other documents written by the deceased person sometimes help prove and clear up. Ambiguous language in the trust can also give you grounds for a contest. Missing mental capacity becomes an issue when the trust’s creator wasn’t sound of mind when they created their document. Fraud or duress can be grounds if you believe someone created the trust under fraudulent conditions or because someone threatened harm.

The process to contest a will or trust usually starts when you file a lawsuit with the probate court. Filing could mean you have to submit different documents that show your reasons for contesting the trust. You need to state the exact grounds for your contest and be specific about it. Most states have filing deadlines connected to contesting a trust and rules that govern the entire process, so you’ll want to act quickly once you decide to move forward. A lawyer can help ensure that you are meeting all the necessary requirements for your claim.

Do I Need a Lawyer to Help with My Trust Dispute?

Reach out to a local trust lawyer soon if you face any kind of trust dispute. A local estate planning attorney will be your best resource to figure out your state’s particular laws about trusts, wills and estates. This kind of attorney can help make your legal rights and options obvious to you based on your state’s estate code and rules. LegalMatch can connect you with the right attorney to help you with your needs.

Your attorney can also make sure that your trust gets drafted correctly to avoid any future legal disputes down the road. And if someone decides to contest the legality of your trust, your attorney can represent you in court to protect your interests.