Key Takeaways
- Common causes of estate disputes include a failure to meet legal requirements, a lack of testamentary capacity, and undue influence or fraud.
- Professional trustees have an important duty to resolve trust contests and disputes, which may involve utilizing dispute resolution strategies like mediation or engaging the support of a skilled trust litigation attorney.
- Trustees must follow important best practices when managing disputes, like ensuring transparent communication and maintaining detailed records of trust transactions.
- It’s advisable that trustees engage the services of a trust administration attorney for guidance in understanding their duties and responsibilities while managing a trust.
Introduction
Estate and trust contests are common when there are disagreements about the terms of a trust or questions about whether a trust accurately reflects the wishes of the trust creator, also known as the trustor. A trust creator must follow specific criteria in order for their trust to be considered valid and legally enforceable—if they do not, it may result in the trust being contested.
Due to the heightened emotions after the loss of a loved one and often financial interests involved, there are unfortunately high chances for disputes or disagreements. Even for a professional trustee, navigating these disputes in probate court can be intimidating. This guide addresses important questions about resolving disputes effectively, enabling you to continue administering the trust while upholding the interests of its creator and beneficiaries while also avoiding pitfalls that might expose you to claims that you breached your duties.
Common Causes of Estate Disputes
Estate disputes can arise for a variety of reasons, from beneficiaries alleging acts of fraud that took advantage of the trust creator to a failure of the trustees to meet their legal obligations.
Failure to Meet Legal Requirements
A trust creator must be sure to meet all established requirements under state law to ensure their trust is valid and legally enforceable. If they do not, the trust instrument may not be considered valid for guiding the trust administration process.
Legal requirements for creating a trust may vary between states, but most states require the following:
- The trustor is of legal age, usually above 18.
- The trustor intentionally created the trust document to serve as their estate plan.
- The trustor signed the trust instrument.
- The trustor identified assets to be held and administered according to the terms of the trust.
If any of these requirements are not met, then the trust instrument may be deemed invalid. If these requirements were not met only for certain amendments to the trust, then only the affected portions are likely to be invalidated. However, if the requirements were not met for the entire document, the trust instrument may be invalidated completely, and assets may be left to be distributed by the trustee of a prior iteration of the decedent’s trust or by the decedent’s personal representative to beneficiaries according to state intestacy law, as if there were no estate plan at all.
Lack of Testamentary Capacity
Testamentary capacity is a crucial element when establishing a trust, referring to a trustor’s mental state and their ability to make sound financial and legal decisions. To have testamentary capacity, a trustor must have the mental capacity to understand the following principles:
- They are creating an estate plan.
- What the current status of their estate assets is.
- Who will inherit the property in the trust.
A lack of testamentary capacity means that a trust creator does not have the mental capacity to make sound decisions and understand the consequences of their actions. A trust can be contested and often invalidated on the grounds that it does not reflect the trustor’s true wishes.
Undue Influence and Fraud
Estate disputes may arise when the potential risk of undue influence and fraud may call the validity of the trust into question. Undue influence occurs when a trustor is wrongfully influenced by a malicious party through tactics such as guilt, blackmail, or coercion.
Fraud occurs when an individual attempts to use deceit or manipulation in trust administration for financial gain. This deceit may include actions like forging the trustor’s signature on the estate plan or falsifying amendments to the trust instrument for their own personal gain.
Any manipulation or wrongful influence that affects an individual’s estate planning is grounds for a legal trust contest from an interested party in the trust. A successful contest would result in any affected provisions being invalidated and struck from the trust instrument.
Legal Ramifications for Trustees
Trustees have a legal duty to administer the trust for the benefit of the beneficiaries, acting with skill, care, and caution. In reality, serving as a trustee is often a thankless task, as the fiduciary responsibility owed to beneficiaries allows beneficiaries to sue trustees for perceived errors or mismanagement of a trust.
If a trustee fails to uphold their duties, they may face legal challenges. If a trustee is liable for acting against the best interests of a trust, they may face removal from their role or even be required to compensate the trust for any losses they are responsible for.
Common factors that could lead to a lawsuit that exposes trustees to personal liability include:
- Trustee theft of trust assets
- Failing to distribute trust assets
- Improper execution of trust instructions
- Failing to provide an accounting or transparency about trust management
- Mishandling trust assets
- Poor investment choices
- Self-dealing
- Conflicts of interest
- Favoring or disfavoring one beneficiary over another
- Paying taxes late or incurring avoidable penalties and charges
To protect themselves from personal liability, trustees should always keep detailed and well-organized records. You should thoroughly document every transaction, your time served, and detail your reasons for making key decisions. You should also make sure you understand all the trust instructions and obey them strictly.
Role of Estate Litigation Attorneys
It’s advisable for trustees to engage the support of a trust and estate litigation attorney as soon as a dispute arises. An attorney’s goal will be to represent the interests of the trust in court, aiming to understand the intentions of the trust creator so that they can build a case to protect their wishes. When arriving for a consultation, be sure to bring a copy of the trust instrument and a list of transactions carried out on behalf of the trust so they have the complete context for the case.
If the trust contest is directed at you as the trustee, the attorney will work with you to understand your actions in administering the trust and defend your actions in upholding the trustor’s wishes. In any case, an attorney will work to resolve disputes as soon as possible in search of the best possible outcome, whether that means addressing the dispute through mediation or, if necessary, arguing the case in court.
Trust Mediation and Resolution Strategies
Litigation is often the last resort for resolving trust disputes, as the process can be costly, time-consuming, and strenuous on family relationships. Trustees should aim to resolve conflicts using alternative dispute resolution strategies whenever possible.
Mediation is one of the most effective alternative approaches to resolving disputes, as it is less contentious and emotionally taxing. Mediation enables all parties to come together and present their perspectives in an effort to reach a mutually agreeable resolution.
To foster successful dispute resolution in the mediation process, consider the following steps:
- Encourage all parties to come to the table with an open mind
- Engage a third-party mediator with experience in mediating trust disputes
- Consult a trust litigation attorney for support
If mediation is unsuccessful in bringing a resolution, arbitration is another option for resolving disputes. Arbitration is another alternative to trust litigation, allowing parties to avoid time-consuming and costly disputes. Arbitration involves the use of a third-party arbitrator, who will hear both sides of the case and issue a legally binding judgment for interested parties to follow.
Navigating Fiduciary Obligations
A trustee has a fiduciary duty to act in the best interests of the trust, its creator, and its beneficiaries at all times. Navigating this obligation involves the following steps.
Understanding Fiduciary Duties
A fiduciary duty is an individual’s obligation to act with good faith on behalf of the personal and financial interests of another party. A fiduciary duty is an umbrella term that encompasses multiple vital responsibilities that a trustee must fulfill in managing the trust.
A trustee’s fiduciary duties include:
- A duty to remain impartial to all beneficiaries
- A duty to act in the best interests of the trustor and their beneficiaries
- A duty to act with good faith, honesty, and integrity
- A duty to remain loyal to the trust and the trustor’s wishes
If a trustee fails to uphold these fiduciary duties, they may face potential consequences, such as trust litigation that could lead to removal from their role or even personal liability for refunding the trust for losses. Actions mentioned above, like stealing trust assets, neglecting to pay trust debts or taxes, or failing to communicate with beneficiaries, all constitute a breach of fiduciary duty.
Managing Conflicts of Interest
One of the challenges in upholding one’s fiduciary duty is avoiding conflicts of interest, which can be either intentional or accidental. A conflict of interest occurs when a trustee acts in their own personal interest rather than that of the trust. Conflicts of interest can arise in various instances, ranging from a trustee deliberately stealing funds from an estate to innocently investing trust funds in a personal business when other investments may have been more lucrative.
Examples of trustee conflict of interest cases include:
- Using funds from the trust to cover personal expenses
- Charging exorbitant trustee fees
- Making investment decisions that benefit the trustee and not the beneficiaries
- Selling trust property to themselves or a business entity they own at a price below market value
- Making a more favorable distribution of trust assets to themselves over other beneficiaries
Instances of conflicts of interest may be more likely to occur when a trustee is also a beneficiary of the trust. It’s important that the trustee closely follows the terms of the trust instrument and documents all transactions with trust assets to demonstrate responsible management of trust assets.
Best Practices for Trustees
As the central player in preventing estate contests or disputes, you, as the trustee, should consider the following best practices.
Maintain Open Communication
Open and transparent communication with beneficiaries is a crucial part of the trustee role. Trustees are required to provide an accounting of the trust to beneficiaries at least annually, at the termination of the trust, and whenever there is a change in trustees. However, it’s best practice to provide updates more frequently when possible.
Consider some of the following tips:
- Uphold your duty to provide a trust accounting at least yearly.
- Provide your contact information to the beneficiaries.
- Notify beneficiaries in advance of any significant transactions with trust assets.
- Update beneficiaries about the status of the trust administration process regularly.
Maintaining consistent communication is not only helpful, but it also minimizes the risk of disputes or trust contests that can arise from uncertainty. If there is a disagreement, open communication can help air out and address concerns before they escalate into lasting issues.
Keep Detailed Records
It’s a prudent practice to keep detailed records of all trust transactions and communications to demonstrate responsible management of the trust. These records should include receipts from trust transactions like real property sales, statements of investments with trust finances, and physical copies of email communications with beneficiaries.
Having these records on hand is important for showing that you are upholding your fiduciary duty to preserve the best interests of the trust. Being able to demonstrate to the probate court that you are fulfilling your duties can help minimize the risk of trust contests and estate litigation.
Consult RMO Lawyers for Help With Estate Contests and Disputes
A professional trustee should consult a trust administration attorney once appointed to the role to receive support in managing the trust, even shortly after the estate planning process is complete. If disputes arise during the administration of a trust, the guidance of an attorney is even more critical.
The trust administration attorneys at RMO are prepared to support trustees in their duties with the goal of preventing issues before they arise. However, if disputes do occur, our team of trust litigation attorneys may be able to help, working diligently to understand the unique family dynamics of each case in search of the best possible outcome. With decades of experience in trust administration and estate litigation, we’ve protected countless people just like you with the goal of seeking a resolution sooner rather than later.
Schedule a consultation with the team at RMO Lawyers to discuss your case and how to move forward today.
Glossary
Beneficiary – A beneficiary is any individual in line to inherit assets like money or property from a deceased individual. A beneficiary can be determined by state law or named in a will or trust document.
Testamentary Capacity – A testator’s ability to make sound financial and legal decisions at the time of the creation of their will, influencing
Trustee – A person appointed by a trust’s creator to coordinate the administration of the trust, manage the trust’s assets, and distribute the assets to the trust’s beneficiaries.
Trustor – An individual who creates a will to be followed upon their death, explaining their wishes for the distribution of their assets to relevant beneficiaries.