Common Issues That Lead to Trust Litigation
Trusts are powerful tools in estate planning, offering benefits like asset protection, tax advantages, and structured wealth transfer. However, when disputes arise among beneficiaries, trustees, or other interested parties, trust litigation can become a complicated and emotionally charged process.
Understanding the common issues that lead to trust litigation in Texas is essential for both individuals creating trusts and those involved in potential disputes. At Russell Manning Law PLLC in Corpus Christi, Texas, I have extensive experience helping clients address and resolve the following trust issues.
Ambiguity in Trust Documents
One of the most frequent triggers for trust litigation is ambiguity in the trust documents. When the language used in a trust is unclear or open to multiple interpretations, it can lead to disagreements among beneficiaries and trustees. For example, vague terms regarding the distribution of assets or the trustee's responsibilities can result in conflicting expectations.
To avoid such disputes, it's crucial to work with an experienced estate planning attorney to draft or update trust documents. They’ll make sure that the language is precise and unambiguous, reflecting the settlor’s current wishes and circumstances.
Breach of Fiduciary Duty
Trustees have a fiduciary duty to act in the best interests of the beneficiaries and to manage the trust assets responsibly. Allegations of a breach of this duty can lead to litigation. Common examples of fiduciary breaches include:
Mismanagement of trust assets
Self-dealing
Failure to provide a timely and accurate accounting
Lack of impartiality among beneficiaries
Beneficiaries who suspect a trustee of breaching their fiduciary duty can seek legal action to remove the trustee and recover any losses incurred due to the breach. Regular audits and clear communication between trustees and beneficiaries can help prevent such issues.
Disputes Over Trust Amendments
Over time, the settlor of a trust may amend their documents to reflect changes in their wishes or personal circumstances. However, disputes can arise when beneficiaries believe that a trust amendment is invalid. Challenges to trust amendments often involve allegations of undue influence, lack of mental capacity, or fraud.
For instance, if a settlor amends their trust shortly before their death and disinherits one or more beneficiaries, the disinherited parties might claim that another beneficiary unduly influenced the settlor or that the settlor didn’t have the mental capacity to make such decisions.
Disagreement Among Co-Trustees
When trusts appoint multiple co-trustees, conflicts can occur if they disagree on how to manage the trust or distribute the assets.
Co-trustees are expected to work together harmoniously, but differing opinions and personal conflicts can lead to a breakdown in communication and cooperation. These disagreements can delay trust administration and cause frustration among beneficiaries, potentially leading to litigation to resolve the impasse.
Sometimes, it’s better to appoint a professional fiduciary to act as trustee instead of co-trustees who may struggle to get along.
Beneficiary Disputes
Beneficiaries may also have conflicts with one another that lead to trust litigation. Common disputes include disagreements over the distribution of assets, claims of favoritism, or disputes regarding the interpretation of the trust terms.
For example, if the settlor’s intent is unclear, beneficiaries may disagree on how to divide certain assets, leading to prolonged legal battles. Open communication and mediation can sometimes resolve these issues without resorting to litigation.
Lack of Mental Capacity
A person must be of sound mind when creating a trust. If there is evidence that the settlor lacked mental capacity at the time the trust was established or amended, the trust may be contested. Conditions like dementia or severe cognitive impairments can undermine a person's ability to make informed decisions.
To contest a trust on the grounds of mental capacity, evidence must show that the settlor didn’t comprehend the implications of their decisions. This can include medical records, assessments from healthcare professionals, and testimonies from those who observed the settlor’s cognitive state.
Undue Influence
Undue influence occurs when someone exerts excessive pressure on the settlor, leading them to make decisions that benefit the influencer rather than the intended beneficiaries. This pressure can take many forms, including:
Emotional manipulation
Threats
Isolation from other family members.
For trusts to be contested on these grounds, there must be evidence showing that the settlor wasn’t acting of their own free will but was instead coerced into making certain decisions. Courts will look at the relationship between the parties involved and the circumstances surrounding the trust's creation.
Fraud and Forgery
Trust contests based on fraud involve tricking the settlor into signing the trust document. The settlor might believe they’re signing something else entirely, meaning they didn’t know they were signing a trust or that it included specific terms.
Evidence of forged signatures or falsified documents related to the trust can lead to a successful contest. Parties include individuals named beneficiaries who suspect foul play and seek to prove that the trust document doesn’t reflect the genuine wishes of the settlor.
Improper Execution
Texas law, specifically the Texas Trust Code, lays out how trusts must be created and executed to be valid. Improper execution might involve missing signatures from required parties, like the settlor or witnesses, failure to properly notarize the document, or issues with the trust’s wording that make it unclear or unenforceable.
Any of these issues might invalidate the trust, leading to legal challenges and potential disputes among beneficiaries or interested parties. It’s essential to understand that even small errors in the trust’s execution can have significant consequences.
Changes in Family Dynamics
Significant changes in family dynamics, such as remarriage, estrangement, or the birth of new children, can lead to disputes over the terms of trusts. For example, if someone remarries and fails to update their estate plan, the new spouse may contest the estate plan and require estate litigation to settle the claim.
It's crucial to review and update trust documents regularly to reflect changes in family circumstances and confirm that the estate plan aligns with the individual's current wishes.
Lack of Communication
Poor communication between trustees and beneficiaries can lead to misunderstandings and disputes. When beneficiaries are left in the dark about the status of the trust, distributions, or investment strategies, frustration and suspicion can arise, often resulting in disputes.
Trustees should maintain open, regular communication with beneficiaries, providing clear updates on the status of the trust, distributions, and any decisions that affect the beneficiaries. Beneficiaries shouldn’t hesitate to ask questions or request updates. Keeping a transparent dialogue can prevent misunderstandings from escalating into litigation.
Perceived Inequity
Beneficiaries may feel that the trust favors certain individuals, particularly if unequal distributions are involved. These perceptions can lead to resentment and claims of unfair treatment, even if the terms align with the settlor’s wishes.
To mitigate such issues, it's essential to have open discussions with beneficiaries about the terms of the trust and the reasons behind the distribution decisions. Clear communication can help manage expectations and reduce the likelihood of disputes.
Trustee Mismanagement
Trustees have a fiduciary duty to act in the best interests of the beneficiaries. However, allegations of mismanagement or conflicts of interest can trigger disputes. Common issues include failure to provide timely accounting, excessive fees, or favoritism.
Beneficiaries who suspect mismanagement should request an accounting of the trust assets. Open communication can often resolve issues.
Reach Out to an Experienced Estate Planning Attorney
Working with a qualified attorney makes it easier to avoid the need for trust litigation and effectively address any issues that may arise. At Russell Manning Law PLLC, I help clients in Corpus Christi, South Texas, the Coastal Bend area, Kleberg County, Nueces County, Live Oak County, Jim Wells County, Aransas County, and Victoria County with every step of the estate planning process. Contact my firm today for assistance with trusts and more.