Trust Disputes

Trust Disputes

What Are Some Common Types of Trust Disputes?

In a trust arrangement, the property is first transferred to a designated trustee, who then holds the property or assets “in trust” for a specified amount of time.

Once this time has passed, the trustee is responsible for transferring the property or assets to the intended beneficiary. As such, a trust dispute may arise where there are any disagreements regarding the distribution of property as dictated in a trust. 

Generally speaking, there are usually certain conditions attached to how the property is to be distributed. As such, many trust disputes involving property arise because of that fact. An example of this would be how the trust creator may include instructions that the property is to be held in trust until the beneficiary reaches the legal age of inheritance, which is usually eighteen years old. The more complex the conditions, the more likely it is that a legal dispute will arise involving the property being distributed.

Disputes that commonly arise in regard to trusts can generally be reduced to two categories. The first is disputes involving beneficiaries disagreeing over the construction of the trust. The second is disputes regarding how the trustee is handling and administering the property or assets assigned to the trust. One of the most common types of trust dispute under this category would be the misappropriation of trust funds.

Some other common types of trust disputes include:

• Whether the trustor had legal capacity to create the trust in the first place;
• Whether the trustor was pressured or coerced to form the trust, or was under undue influence; and 
• Whether the trustor was affected by some sort of fraud, or if their signature was forged.

In terms of the mismanagement of the trust by the trustee, an example would be how the trustee may have failed to provide accurate accounting records of the assets and property held in the trust. Or, they improperly divided and distributed the property or assets to the beneficiaries.

Another common issue can arise if the trustee mixed their personal assets with the property that was in the trust, or did not follow the exact instructions provided by the trustor for managing the trust.

What Are Some of the Remedies for Trust Disputes?

There are many different remedies intended to resolve trust disputes. Some of these resolutions are only available according to the laws of each state, while other conflicts can be resolved by the trust’s beneficiaries coming to a majority vote. 

More serious disputes may need to be resolved in court, or by using an Alternative Dispute Resolution (“ADR”) method. ADR is frequently recommended as an option for resolving trust disputes, as it works to avoid litigation. In ADR, the disputing parties agree to be bound by the decision of an independent and impartial third party.

These conferences generally encourage parties to settle their dispute without going to trial; as such, ADR is generally less formal, less expensive, and less time-consuming than litigating the dispute.

Disputes involving a trustee’s mismanagement of a trust are often resolved by first removing the trustee from their position. The trustor then selects a replacement to become the new trustee.

Alternatively, a judge may order a constructive trust. A constructive trust can counteract the trustee’s initial mismanagement of the trust.

Additionally, if a court finds that a trustee used assets from the trust to their own personal benefit, the trustee may be held liable for and be ordered to fully reimburse the beneficiaries.