Co-Trustee Problems: Common Disputes and Resolutions

Key Takeaways

• Appointing multiple trustees to manage and administer a trust can offer benefits by allowing them to share responsibilities or check and balance each other. 
• However, having co-trustees may also lead to slower decision-making processes, administrative red tape, and potential legal disputes. These disputes can arise from differing interpretations of the trust document, personal conflicts, or contrasting management styles.
• To minimize the risk of conflicts, it is crucial to ensure that the trust document is clearly drafted and that trustees are carefully selected with consideration for their roles and relationships.
• If disagreements occur among co-trustees, they may consider mediation, seek guidance from a probate court, petition for the removal of a trustee, or, in more severe cases, pursue litigation. Given the complexities of managing trust disputes, consulting with an experienced trust attorney is essential to navigating these challenges effectively.

What Are Co-Trustees

Co-trusteeship refers to the appointment of multiple trustees to manage and administer a trust, which is a legal arrangement enabling the transfer of assets to a designated entity for the benefit of others. In this structure, co-trustees are tasked with sharing fiduciary responsibilities, each acting in the best interests of the trust’s beneficiaries.

The primary advantage of co-trusteeship is the creation of checks and balances to ensure that no single individual has sole control over the trust’s assets. This collaborative approach can help promote transparency and more thoughtful decision-making while easing the workload of a single trustee. However, co-trusteeship can also introduce complexities, particularly when disagreements arise among trustees regarding trust administration. These disputes can slow decision-making, and in some cases, escalate into legal conflicts that strain relationships and deplete trust resources. In addition, co-trusteeship may create additional burdens to administering a trust because third parties, such as financial institutions or title companies, may require that all co-trustees approve trust transactions.

This guide aims to clarify the potential benefits and drawbacks of appointing co-trustees and offers strategies for minimizing conflicts to ensure smooth and effective trust management. If you are considering the appointment of multiple trustees, it is highly advisable to seek legal counsel, especially during the trust planning phase, to discourage potential disputes, address practical concerns, and facilitate a more streamlined administration process.

Co-Trustee vs. Trustee

A trustee is an individual or entity appointed to manage and administer a trust. In collaboration with an estate planning attorney, the settlor creates the trust and selects the trustee to manage and distribute the assets held within the trust, which may include money, stocks, real estate, or other types of property. The trustee holds title ownership of these assets and is responsible for transferring them to the beneficiaries according to the settlor’s instructions stated in the trust agreement.

The primary role of a trustee is to ensure that the terms of the trust are followed and that the beneficiaries’ interests are protected to the best of their ability. Trustees are typically expected to perform a variety of duties, including:

• Making distributions to beneficiaries
• Ensuring trust taxes are timely filed and paid
• Making prudent investments to preserve or enhance the value of trust assets
• Defending the trust against legal challenges
• Providing regular updates on the trust’s assets, liabilities, and key decisions to the beneficiaries

A single trustee is simply referred to as a “trustee.” If there is only one trustee appointed to manage the trust, they are responsible for all the duties and decisions related to the trust’s administration without the involvement of co-trustees.

When multiple trustees are appointed, they are referred to as co-trustees, and they typically share responsibility for fulfilling these duties unless the trust document specifies otherwise. However, conflicts may arise if the trust document lacks clear guidelines on decision-making processes, particularly when co-trustees have differing opinions. Disagreements over issues such as investment strategies or interpretations of the trust’s terms can hinder effective trust administration and lead to disputes that complicate the process. Co-trusteeship can also complicate routine matters if, for example, a bank requires all co-trustees to approve a transaction, but one of the co-trustees is on vacation or otherwise unavailable. 

The Pros and Cons of Having Co-Trustees

Whether you are currently facing a dispute with a co-trustee or are in the process of determining whether appointing co-trustees is the most effective solution for your trust, it is important to carefully consider the potential advantages and disadvantages. Understanding these factors will help ensure you make an informed decision that best suits your specific circumstances.

Pros
Here are some of the key advantages of appointing co-trustees:

• Increased Transparency – Multiple trustees create a system of checks and balances, reducing the risk of mismanagement or fraud while ensuring better oversight and reporting.
• Shared Responsibility – Co-trustees can divide the workload, easing the burden on any one trustee. This collaborative approach also brings diverse expertise and perspectives to the administration of the trust.
• Continuity of Administration – In the event that one trustee becomes incapacitated or otherwise unable to fulfill their duties, another trustee can step in and ensure the trust continues to be managed without disruption or the need to appoint a successor trustee.

Cons
While there are clear benefits, there are also potential downsides to consider:

• Slower Decision-Making – Reaching a consensus among co-trustees with differing opinions may delay decision-making, especially on critical issues.
• Increased Likelihood of Disagreements – Differing management styles, personal values, or interpretations of the trust document can lead to conflicts, complicating the administration process.
• Potential for Legal Conflicts – Disagreements between co-trustees, especially among family members, can escalate into legal disputes that not only strain relationships but also deplete trust assets.

To mitigate these potential challenges, it is crucial to understand the common causes of conflict between co-trustees and to take proactive measures to prevent or resolve these issues. A trust administration attorney or trust dispute counsel, depending on your circumstances, can offer critical advice to address these challenges. 

What Causes Conflicts Between Co-Trustees?

While every situation is unique, we commonly see disputes between co-trustees regarding the following topics:

• Differing Opinions on Trust Asset Management – Disagreements over how to manage or invest trust assets can lead to delays and conflicts, especially when trustees have different strategies or risk tolerances.
• Ambiguous Terms in the Trust Document – Varying interpretations of the trust document, particularly when terms are unclear or vague, can result in disagreements about the intent of the settlor and how to best administer the trust or distribute its assets.
• Family Dynamics – When family members serve as co-trustees, pre-existing relationships or personal conflicts can complicate trust administration and increase the likelihood of disputes.
• Lack of Clear Communication – A failure to communicate openly and effectively can lead to misunderstandings, mistrust, and misplaced assumptions, escalating tensions between co-trustees.
• Conflicting Personal Interests – If a co-trustee places their own personal interests ahead of the beneficiaries’ interests, it can lead to a breach of fiduciary duty and undermine the trust’s administration.
• Breaches of Trust – If a co-trustee breaches one or more fiduciary duties to the trust, such as mixing trust funds with personal assets, the non-breaching co-trustee may be obligated to redress the breaches, up to and including filing a lawsuit against the breaching co-trustee.

Ultimately, when personal interests take precedence over the trust’s objectives or the beneficiaries’ best interests, it can result in a breach of fiduciary duty and create serious conflicts that hinder trust administration.

What Happens When Co-Trustees Disagree?

Imagine you are a diligent and responsible co-trustee, and you discover that the other co-trustee is harming the trust by neglect, reckless actions, or intentional bad acts.  As you might expect, this can be a difficult and stressful situation. As a trustee, you are bound by fiduciary duties to act in the best interests of the beneficiaries and in accordance with the terms of the trust. When another co-trustee is not fulfilling their responsibilities or is engaging in misconduct, it’s important to address the issue promptly and appropriately. Here are steps you can take if you are facing challenges with a co-trustee who does not share your diligence and integrity.

Before resorting to litigation, co-trustees may wish to attempt alternative conflict resolution methods, such as mediation or negotiation. These processes involve a neutral third party who facilitates discussions between the co-trustees, helping them reach a mutually agreeable solution without the need for court intervention. Mediation, in particular, can present a costly investment, but it often resolves disputes more efficiently and amicably in the long run by avoiding lengthy litigation.

In certain states, such as California, co-trustees can also file a petition for instructions from probate courts to guide trustees on specific decisions and resolve certain conflicts.

Moreover, if a co-trustee acts improperly or persistently fails to perform their designated tasks, other co-trustees or beneficiaries can usually petition the court for their removal.

How to Navigate Co-Trustee Conflicts as a Beneficiary

As a beneficiary, dealing with conflicts between co-trustees can be emotionally challenging, especially when conflict creates uncertainty regarding the management and future of trust assets. Beneficiaries may feel trapped or helpless when conflict between co-trustees leads to dysfunctional trust administration and distribution., Beneficiaries should not despair, however, because they have rights to safeguard their interests in the trust.

If you are a trust beneficiary and become concerned about the actions or inactions of co-trustees, you have several potential courses of action, all of which start by consulting with a qualified trust litigation attorney:

• Petitioning the Court: If a co-trustee is failing to fulfill their fiduciary duties, you can petition the court to have that trustee removed or replaced. Courts can impose several different remedies in cases where trustees breach their responsibilities to ensure the trust is managed properly.
  
• Litigation: If you believe a trustee has mismanaged, neglected, or intentionally harmed the trust or its assets, you may have grounds for a lawsuit. Legal action could help rectify the situation and protect your interests in the trust’s assets.
  
• Criminal Prosecution: In extreme cases, such as fraud or embezzlement, trustees may face criminal charges. This could occur regardless of whether a beneficiary pursues civil litigation, depending on the severity of the misconduct. Beneficiaries, however, typically lack the power to initiate or pursue criminal investigation and prosecution. Rather, those decisions are left to the discretion of law enforcement and prosecutors.

Given that each trust situation is unique, consulting with an experienced trust administration attorney is crucial to understanding your specific options. A trust dispute lawyer can assess your situation and provide reliable advice tailored to your needs, helping you navigate this complex process effectively.

Co-Trustee Conflict and Beneficiary Rights in Action

To understand the challenges beneficiaries may face when co-trustees are in conflict and how legal mechanisms can be used to protect their interests, let’s explore the following hypothetical scenario. This example illustrates the potential difficulties that arise when co-trustees are unable to work together effectively, as well as the steps a beneficiary can take to address these issues. Keep in mind that every situation is unique, so it’s essential to seek guidance from an experienced trust administration attorney to ensure the best course of action for your specific case.

Sarah, a beneficiary of her late father’s trust, stands to inherit several assets, including real estate, stocks, and a small business. However, the administration of the trust has become complicated due to the actions—or lack thereof—of the appointed co-trustees: her brother James and her cousin Michael.

James and Michael were named co-trustees by their father because of their close relationship and shared understanding of family needs. However, their management styles are very different, and tensions have grown since their father’s passing. James, who has assumed a more dominant role, has refused to take action on certain trust matters, such as selling the family vacation home, which Michael believes could generate more value for the trust through investment. Meanwhile, James insists that holding onto the property is in the best interest of the trust beneficiaries.

As time passes, Sarah notices that bills related to the property aren’t being paid on time, and trust investments appear stagnant. Attempts to communicate with both trustees yield limited results, as James has been unresponsive, and Michael, while more engaged, struggles to influence James’s decisions.

Sarah becomes increasingly concerned as she sees signs of mismanagement. Trust resources are being drained without clear progress toward distribution, and personal expenses have been charged to the trust’s accounts. Sarah’s attempts to get answers from James are met with resistance, and she fears the trust’s value may be diminishing. As these frustrations grow, she seeks legal advice from a trust litigation attorney on how to protect her rights and ensure that the trust is being properly managed.

Sarah’s attorney informs her that, as a beneficiary, she has the right to request a detailed accounting of the trust and challenge any actions that might violate the co-trustees’ fiduciary duties.

As Sarah watches the situation deteriorate, she becomes increasingly aware of the dysfunctional dynamic between James and Michael. Michael, too, is frustrated but feels powerless because James has veto power over key decisions, including the sale of assets and distribution of funds. This lack of cooperation between the two co-trustees is creating a toxic environment, and Sarah feels trapped between family loyalty and the need to protect her inheritance.

After further attempts at informal resolution fail, Sarah, with her attorney’s guidance, files a petition with the court to have James removed as co-trustee. She presents evidence of his failure to manage the trust’s assets, lack of communication with the beneficiaries, and possible misuse of trust funds. The court holds several hearings and determines that James’s actions are detrimental to the trust and its beneficiaries.

The court enters an order that removes James as a co-trustee and replaces him with an independent third-party trustee. This decision ensures that the trust will be administered properly and in accordance with its terms.

In the end, Sarah finds that although legal action was necessary, it ultimately protected her interests and those of the other beneficiaries. The experience reinforces the critical role that a trustee’s duties and transparency play in ensuring the trust’s goals are fulfilled.

Keep in mind that this case scenario will not be resolved the same way every time—every case is unique, so it is important to consult with an experienced probate litigation attorney to determine the best course of action for your situation.

Effective Planning to Avoid Co-Trustee Disputes

If you or a loved one are still deciding whether to appoint co-trustees or how to structure their roles to minimize potential conflicts, it’s important to consider the following key planning strategies:

1. Draft Clear Terms in the Trust Document – By clearly specifying the roles, responsibilities, and decision-making processes, the settlor can help ensure that all parties understand their duties and reduce the risk of misunderstandings down the line.
   
2. Select Co-Trustees Based on Experience, Capability, and Compatibility – It’s important to choose co-trustees who are capable and experienced in managing the trust, rather than selecting individuals based solely on familial ties. This ensures that those involved in trust administration have the expertise needed to handle complex matters effectively and responsibly. It may be just as important to select co-trustees who can work well together, because even well-meaning and skilled co-trustees can derail trust administration if they simply cannot get along.
   
3. Maintain Transparent Communication Between Co-trustees and with Beneficiaries – Co-trustees should keep in regular communication with each other to ensure that important duties are not neglected. For example, co-trustees should regularly provide detailed updates to the beneficiaries. Open communication builds trust and reduces the likelihood of disputes arising from misunderstandings or misinformation.

By ensuring the trust document is clear, carefully selecting co-trustees, and fostering transparent communication, the risk of conflicts can be significantly reduced. Taking these proactive steps not only protects the interests of the settlor and beneficiaries but also helps safeguard the co-trustees from potential liability and stress.

The Risks of Appointing Multiple Trustees

Remember, while appointing co-trustees may provide several benefits, it also introduces certain risks. Some of the potential challenges co-trusteeship can bring include:

• Stalemates or Deadlock: Equal authority among co-trustees can lead to situations where differing opinions prevent decisions from being made, resulting in delays or a complete standstill in trust management.
  
• Increased Administrative Burden: Coordinating among multiple trustees can be time-consuming and complex, potentially leading to inefficiencies or missed opportunities.
  
• Potential Legal Costs: Disputes between co-trustees may require legal intervention to resolve, which can be costly and further strain trust resources.
  
• Family Disputes: When family members, such as siblings or children, serve as co-trustees, personal dynamics and unresolved family issues can interfere with objective decision-making and escalate into emotional conflicts.

These challenges can complicate trust administration, slow down decision-making processes, and create friction that undermines the overall efficiency and effectiveness of the trust. While the attorneys of RMO focus on contested administrations or disputes, our office may be able to connect you with an estate planner who is adept at planning around such issues. 

Get Help with Co-Trustee Issues from RMO Lawyers

Disagreements between co-trustees can derail the effective administration of a trust and create unnecessary stress for the beneficiaries.

Whether you are a co-trustee facing challenges with a difficult counterpart or a beneficiary trying to manage a conflict with a co-trustee, consulting a trust litigation attorney is essential.

Schedule a free consultation with an experienced trust litigation attorney from RMO Lawyers for trustworthy guidance navigating co-trustee disputes.