Trust litigation encompasses disputes involving the creation, administration, and interpretation of trusts. These conflicts may arise between beneficiaries and trustees, among beneficiaries themselves, or involve challenges to the validity of trust documents. Because trusts often control substantial assets over extended periods, the stakes in trust disputes can be significant. Understanding the types of trust litigation and available remedies helps beneficiaries protect their interests and trustees understand their obligations and potential liability.
Trust Contests
Trust contests challenge the validity of trust documents, similar to will contests. Grounds for contesting a trust include lack of capacity, undue influence, fraud, and improper execution. The settlor must have been mentally competent when creating the trust, understanding the nature of the trust, the property it contains, and the beneficiaries who will receive it.
Undue influence claims allege that someone exerted improper pressure on the settlor, causing the trust to reflect the influencer's wishes rather than the settlor's genuine intentions. Fraud claims assert that misrepresentations caused the settlor to create or modify the trust. Procedural challenges focus on whether the trust document was properly signed and witnessed according to state requirements.
Breach of Fiduciary Duty
Trustees owe fiduciary duties to beneficiaries, including duties of loyalty, care, and impartiality. Breach of these duties is the most common basis for trust litigation. The duty of loyalty prohibits self-dealing, using trust property for personal benefit, or putting personal interests above those of beneficiaries.
The duty of care requires trustees to manage trust assets prudently, make reasonable investments, maintain adequate records, and administer the trust competently. The duty of impartiality requires treating beneficiaries fairly according to the trust terms. Violations of any of these duties can result in liability for losses, removal as trustee, and in some cases attorneys' fees and punitive damages.
Trust Interpretation Disputes
Disputes over the meaning of trust provisions require courts to determine the settlor's intent. Ambiguous language, changed circumstances, or situations the settlor did not anticipate may create uncertainty about how the trust should be administered. Courts look to the trust document as a whole, consider the circumstances when it was created, and apply rules of construction to determine meaning.
Common interpretation disputes involve the scope of trustee powers, the timing and amount of distributions, the definition of beneficiary classes, and how to handle contingencies. Courts generally try to effectuate what the settlor would have wanted if they had considered the specific situation. When documents are truly ambiguous, extrinsic evidence about the settlor's intent may be considered.
Trustee Removal
Beneficiaries may petition to remove trustees who have breached their duties, become incapacitated, or otherwise become unsuitable to continue serving. Grounds for removal include breach of fiduciary duty, conflicts of interest, failure to account, persistent hostility with beneficiaries, incapacity, and unwillingness or inability to administer the trust effectively.
Courts are generally reluctant to remove trustees appointed by settlors without clear evidence of problems. However, where a trustee's conduct has harmed the trust or made effective administration impossible, removal protects beneficiary interests. The trust document may specify removal procedures or replacement trustees, which courts typically follow unless doing so would harm beneficiaries.
Accounting and Information Rights
Beneficiaries generally have rights to accountings and information about trust administration. Trustees must provide regular accounts of trust transactions, assets, and distributions. Failure to provide adequate information can itself be grounds for litigation, as beneficiaries cannot effectively monitor trustees without transparency.
When beneficiaries believe accountings are inaccurate or incomplete, they can petition courts to compel full disclosure and potentially surcharge trustees for unexplained losses. Reviewing accountings carefully and asking questions promptly helps beneficiaries identify problems before they compound. Trustees protect themselves by maintaining meticulous records and providing detailed, clear accountings.
Trust Modification and Termination
Sometimes circumstances change so significantly that strict adherence to trust terms defeats the settlor's apparent purposes. Courts may modify trusts to achieve intended objectives when changed circumstances make original terms unworkable. Termination may be available when all beneficiaries consent and the trust purposes have been fulfilled or become impossible.
Some states have enacted statutes facilitating trust modification for various reasons including tax savings, administrative efficiency, or changed circumstances. Nonjudicial settlement agreements allow interested parties to resolve certain issues without court involvement. Understanding these options helps trustees and beneficiaries adapt to changing situations while honoring the settlor's core intentions.
Remedies in Trust Litigation
Successful trust litigation can result in various remedies depending on the claims and circumstances. Monetary damages compensate for losses caused by fiduciary breaches. Disgorgement requires trustees to return profits gained through self-dealing or other misconduct. Removal replaces problematic trustees with suitable successors.
Injunctive relief can prevent threatened harm to trust assets or require specific actions by trustees. Trust reformation or modification changes terms to address problems. Declaration of rights clarifies trustee powers or beneficiary interests. In some cases, attorneys' fees may be awarded to prevailing beneficiaries, charged against trustees personally, or paid from trust assets depending on the circumstances.
Practical Considerations
Trust litigation is expensive and time-consuming. Fees for both sides often come from trust assets, reducing what beneficiaries ultimately receive. Mediation and settlement often produce better outcomes than contested litigation, preserving family relationships and trust assets while resolving disputes more quickly.
Before initiating litigation, carefully evaluate the strength of your claims, the likely costs, and whether alternative resolution is possible. If you must litigate, work with an attorney experienced in trust disputes who understands both the legal framework and practical dynamics of these cases. Whether you are a beneficiary seeking to protect your interests or a trustee defending your administration, competent legal guidance makes a significant difference in outcomes.