Key Takeaways
- Family trust disputes are a concern in high-value estates due to the complex portfolio of assets, the significant financial implications, and the emotional stakes of the issue.
- Common causes of family trust disputes include breaches of fiduciary duty, inheritance disputes, claims of undue influence or lack of capacity, and more.
- Litigating these disputes usually involves filing a court petition, navigating discovery, considering alternative dispute resolution, and presenting the case in court.
- To avoid family trust disputes, it’s important to develop a trust document with clear instructions, update this plan regularly, maintain consistent communication, and appoint an experienced trustee.
Introduction
High-value estates are often more susceptible to disputes and litigation because they involve multiple beneficiaries, complex asset structures, valuable assets, and heightened interests in receiving a portion of the estate. These disputes can also be particularly challenging to navigate, given the high financial and emotional stakes involved.
If not handled quickly, disputes can drain estate funds and strain family relationships. Being able to address these issues quickly through effective dispute resolution methods is crucial for preserving the estate’s wealth and protecting family dynamics.
If you believe you may be facing litigation in a family trust dispute, you should start by consulting a skilled attorney as soon as possible to determine your next steps. This guide highlights what you can expect when facing high-net-worth trust disputes and how you can best navigate them.
Common Causes of Family Trust Disputes
Family trust disputes can arise from a variety of potential issues, stemming from acts of trustee misconduct to manipulation by a beneficiary. Below are the most common.
Breach of Fiduciary Duty
A breach of fiduciary duty can take many forms, and a breach occurs any time a trustee fails to uphold their responsibility to act in the best interests of an estate. Such an action can range from negligence to outright malicious acts that intend to steal estate assets for personal gain.
Examples of a breach of fiduciary duty may include:
- Failing to fulfill the wishes of the grantor as described in the trust instrument
- Embezzling funds from the estate or using fraudulent actions for personal gain
- Showing preferential treatment to one beneficiary over the others
- Neglecting to fulfill responsibilities for managing trust assets
- Failing to meet tax obligations or other legal requirements
With the complexity of high-value estates and the significant financial impact involved, there are high stakes regarding a trustee’s responsibilities. If beneficiaries of an estate suspect a breach of fiduciary duty, they have a right to pursue legal action, and it’s advisable that they consult a trust litigation lawyer as soon as possible.
Ambiguities in Trust Documents
Vague terminology in a trust document can lead to disputes over who should receive what assets and under what circumstances. For example, if a trust document names multiple beneficiaries, but it is unclear regarding what share of assets each beneficiary should receive, or two clauses contradict each other, then beneficiaries may raise a dispute claiming a larger share. In these cases, a trust contest will be necessary for gathering more context and clarifying the instructions for the administration process.
Claims of Undue Influence or Lack of Capacity
In cases where a trust creator either created or modified a trust under undue influence or while lacking testamentary capacity. Undue influence and lack of mental capacity is often a suspicion when a grantor makes changes to their trust shortly before their death or an individual becomes especially close to the grantor at the end of their life.
If an interested party has grounds to contest a trust and has evidence of undue influence or lack of mental capacity, they may raise a formal trust contest to dispute the validity of the trust instrument and question its ability to guide the trust administration process.
Conflicts Over Asset Distribution
Disputes often arise when trust beneficiaries feel that the proposed distribution of assets is unequal or unfair. In high-value estates where there are highly valued assets involved, these disputes may be more likely, as beneficiaries desire a greater share of these assets. Beneficiaries may disagree regarding who should receive a stake in the family business or who has a right to receive ownership of high-value real estate, which may lead to litigation.
Understanding the Role of Trustees and Beneficiaries
During trust administration, trustees and trust beneficiaries have the two most central and involved roles.
Responsibilities of Trustees
As discussed above, a trustee has a fiduciary duty to uphold the best interests of an estate. Some states, like California, include the responsibilities of the trustee in codified law.
Under California Probate Codes 16060, for example, this duty involves some of the following responsibilities:
- The duty to keep beneficiaries reasonably informed of the trust and its administration
- The duty to provide terms of the trust to a beneficiary upon request
- The duty to provide reports related to the administration of a trust
- The duty to notify beneficiaries of changes to a trust or its administration
When working with high-value estates, a trustee is faced with significant responsibility to protect and manage a complex portfolio of valuable assets often spread out across multiple jurisdictions. This only emphasizes the importance of ensuring that you choose a trustee with experience to manage the trust and the property within it.
Rights of Beneficiaries
Beneficiaries have clear and specific legal rights in the trust administration process, and it is the trustee’s responsibility to ensure that these rights are respected and upheld.
Key rights of beneficiaries include:
- The right to review the trust instrument and receive notice of the process
- The right to information surrounding the administration of a trust
- The right to fair treatment by the trustee
- The right to request a trust accounting and receive one at least yearly
- The right to receive a timely distribution of assets
If a beneficiary believes that their rights have been violated by a trustee treating them unfairly or refusing to provide ongoing communication, a trust beneficiary has the right to take legal action.
Common Conflicts Between Trustees and Beneficiaries
As a trustee is responsible for carrying out the administration of a trust and beneficiaries are emotionally invested in the outcome of trust distributions, disputes are not uncommon. These disputes can originate from anything from misunderstandings to outright acts of wrongdoing.
Common conflicts between trustees and trust beneficiaries include:
- Lack of communication about the steps or timeline of the trust administration
- A failure of the trustee to fulfill their responsibilities
- Perceived favoritism or unfairness against beneficiaries
- Disagreements on how to handle financial assets or transactions surrounding the estate
Clear communication and responsiveness between both sides is crucial for minimizing tension and preventing disputes from occurring. If conflicts do arise, then often a conversation with the support of a third-party mediator can promote a resolution before the issue escalates to litigation.
Litigating Family Trust Disputes
In cases of family trust disputes that require litigation, interested parties can expect the following steps.
Filing a Petition or Claim
The litigation process begins by filing a petition with the probate court or the civil court. When filing your petition, it’s important to ensure you file in the proper court with jurisdiction over your case.
Filing a claim includes ensuring your case falls within the appropriate deadlines. For example, in California, a trust contest must be filed within 120 days of the notification of the beginning of the trust administration process.
Once you file a petition with the court, it will be necessary to support your claim with evidence and start building your case to present before the court.
Discovery Process and Gathering Evidence
The discovery process is necessary to gather as much information and evidence about the case as possible to build context for the dispute and the related case. The support of a skilled trust litigation attorney is instrumental, as they can support you in all of the following steps:
- Summoning witnesses for depositions
- Filing subpoenas
- Submitting document requests
- Uncovering financial records
- Gathering witness statements
Often, in cases of high-value estates, the discovery process also involves engaging expert witnesses to assist in valuing complex assets like businesses, artwork, or rare collectibles to provide context for the dispute.
Pre-Trial Resolutions (Mediation and Negotiation)
A skilled attorney will often attempt to resolve a conflict prior to litigation, understanding that litigation is a costly and lengthy process that usually only exacerbates family tensions. Steps like mediation and negotiation can be used to engage the parties involved in the dispute and seek a mutually agreeable resolution before going to court.
For example, if an omitted heir believes that they have a right to a stake in the family vacation home, a negotiation process may be able to resolve the dispute without more extensive legal action. Through negotiations, the two parties may come to an agreement to split time in the home and maintain dual ownership, rather than have a court decide to sell the home and split the proceeds.
Trial Procedures and Court Involvement
During a trial, both sides will present their case and the supporting evidence in search of their desired outcome. This process may involve examples like beneficiaries presenting evidence of trustee misconduct, beneficiaries providing evidence for their right to an inheritance, or a trustee presenting evidence of their responsible administration of the trust.
The court will evaluate the facts of the case, including interpreting the trust document, examining whether a trustee fulfilled the responsibilities of their role, and considering the arguments presented by both sides. Finally, the court will present its ruling based on the facts presented and the laws where the dispute occurred.
Alternative Dispute Resolution Options
Although litigation is often a path forward for resolving trust disputes as a last resort, there are less invasive methods to seek resolution first. Alternative dispute resolution options like mediation or arbitration can provide a less costly, less time-consuming approach than litigation that has a greater chance of preserving family dynamics.
These resolution methods also prevent the estate dispute from becoming public record, which is often preferred due to the desire for privacy and often already public profile of high-net-worth individuals.
The most common options include:
- Mediation allows multiple parties to come to the table in negotiations before a third party, where both sides can present their ideal outcome and discuss a mutually agreeable solution that both sides can use to proceed.
- Arbitration may be better suited to resolve disputes when multiple parties are having a difficult time coming to an agreement through mediation. Arbitration involves a private third party to hear both sides and make a ruling without the intensity of litigation.
Still, in some cases, alternative dispute resolution may not be the most appropriate path forward. This is common in cases where acts like fraud or criminal activity are involved. In these cases, litigation may be necessary to seek damages and restitution. In some cases, court oversight for high-value estates may also be more likely to be beneficial, as the value of assets involved may need court oversight to ensure fairness.
Potential Outcomes of Family Trust Litigation
The possible outcome of a trust litigation case depends on the type of dispute that occurred. The following are some common outcomes of family trust litigation cases.
Trustee Removal or Replacement
If a trustee has demonstrated a breach of fiduciary duty, an act of misconduct, or gross negligence in their administration of the trust, the court may decide to remove a trustee from their role and appoint a replacement.
This step would require appointing a successor trustee to take the place and fulfill the administration of the trust. Because this step is disruptive and may cause delays to the trust administration process, trustee removal is often a last resort if the dispute cannot be resolved through mediation or negotiation.
However, the court may follow through on removing a trustee if their actions are compromising the integrity of the trust and its best interests. A trustee may also decide to step down voluntarily if they no longer wish to serve petition the court
Redistribution of Trust Assets
In some cases, the courts may order changes to the distribution of trust assets to resolve disputes. This is common in instances where an heir has a legal right to assets. For example, if a child with a legal right to an inheritance is unintentionally omitted from a trust instrument, also known as a pretermitted heir, the court may rule that the child should receive an equal percentage of the trust assets as the other children listed in the trust as beneficiaries.
Modifications to Trust Terms
In the case of a trust dispute where there was ambiguity around the terms of the trust or uncertainty about the validity of the trust, the court may call for a modification to the instructions outlined in the trust instrument. As an example, if the court is presented with enough evidence and rules that a section of the trust instrument was created under undue influence, it may invalidate that section of the trust instrument to better reflect the grantor’s initial intent.
Financial Restitution
If acts of trustee misconduct resulted in financial losses to the estate, then beneficiaries may be able to receive financial restitution ordered by the court. In cases of trustees stealing assets or making willfully negligent investment decisions, the probate court may order the trustee to compensate the estate for these losses.
Beneficiaries may also receive double damages for the act of wrongdoing by the trust representative. Beneficiaries can seek these damages in civil court for compensation for legal fees related to legal action against the trustee.
Tips for Avoiding Trust Disputes in High-Value Estates
The best approach to managing disputes is to prevent them entirely where possible. Being proactive in your estate planning and in preparing for the administration of a trust can reduce the likelihood of disputes arising, even in sensitive, high-value estates.
Consider the following steps to avoid trust disputes in high-value estates:
- Draft Clear and Comprehensive Trust Documents – Work with an experienced estate planning attorney to create a trust instrument that is clear and avoids ambiguity so that it can properly guide the trust administration process.
- Regularly Review and Update Trusts – Changing family dynamics, asset structures, and laws around trusts can all necessitate changes in your estate plan so that it addresses all your concerns and clearly accounts for all assets.
- Maintain Transparent Communication – Clearly communicate your trust plans and keep beneficiaries informed of any changes to your trust so that there is little confusion or surprise during the administration of the trust.
- Appoint Professional Trustees – Hiring corporate trustees or professional fiduciaries can minimize conflicts by ensuring that the trustee is experienced and well-equipped to handle complex estates with a large number of valuable assets.
Multiple interested parties in a trust play a role in preventing disputes. From the grantor creating a clear estate plan and communicating with beneficiaries to the trustee continuing the trend of clear communication and carrying out their duties responsibly, it’s important that all parties are proactive.
Choosing the Right Trust Litigation Attorney
It’s crucial that you work with a qualified and experienced trust litigation attorney. When selecting a trust litigation attorney, consider their knowledge of state and local laws, experience working with cases involving high-net-worth individuals, and sensitivity to the emotions involved in trust litigation cases.
Ask the following questions:
- Do you have experience working with high-value estates?
- Do you have experience with alternative dispute resolution methods?
- Have you worked on similar cases previously?
- What results have you secured for similar cases in the past?
- What next steps do you envision for a case like this?
In addition to ensuring an attorney understands the nuances of high-value trust litigation, it’s important that an attorney also has a reputation for handling cases with empathy and compassion. It’s advised to schedule an initial consultation with an attorney is the best way to gather more information about your case and understand what they view as the next steps.
Take Control of Your Family Trust Dispute Today
High-value estates may find themselves more likely to face disputes given the complexity of the estates, the significant number of valuable assets, sensitive emotional dynamics, and the resulting high stakes. Fortunately, interested parties in high-value estates can take steps to address disputes by consulting a skilled attorney and understanding the terms laid out in the trust instrument.
If you are facing challenges in the administration of a trust, RMO may be able to help.
With decades of experience in both trust administration and litigation, we have a proven track record of protecting the legacies of individuals with high-value estates. We’ll take the time to understand the unique details, intricacies, and family dynamics around your case so that we can develop a winning strategy to seek a resolution sooner.
Schedule a consultation with our attorneys at RMO to start discussing your case and planning for next steps.
Glossary
Fiduciary duty – The legal obligation that an estate executor or administrator has to an estate and its beneficiaries to act in their best interests.
Breach of fiduciary duty – When an individual fails to uphold their responsibilities in their role as a fiduciary representing an estate, either due to negligence or willful misconduct.
Trust – A trust is a legal agreement that grants a third party, or fiduciary, the authority to hold and manage assets for the beneficiaries of an estate.
Trustee – A trustee is a person who coordinates the administration of the trust, manages the trust’s assets and is responsible for distributing the assets to the trust’s beneficiaries.
Grantor – A grantor is a person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.
Beneficiary – A beneficiary is an individual or entity identified in a trust or will as being entitled to receive benefits from the estate.
Heir – An individual who is entitled to receive a share of assets in the event of the settlor’s death based on state intestacy laws.