What is Trust Litigation and When Do I Need It?

Trust Litigation in 2022

What is Trust litigation? Trust litigation is a very unfortunate occurrence that might become a necessity when the financial affairs of individuals or families that are part of a trust become tangled, disputed, or simply confused. This can happen even when a trust is well-crafted and instructions are clearly stated. Here at Lowthorp Richards, we often counsel clients that litigation should be the last resort after all other options have been exhausted, and this is certainly the case with trust litigation, largely because of the highly personal nature of relationships generally surrounding trusts.

We will attempt in this article to identify the red flags that may signal when it is time for action of the last resort. Litigation is unfortunate because it frustrates the hard work of the estate and individuals who wanted to see long term benefits of the estate.

Totality of the circumstances

In order to spot the situations when litigation is necessary, it is useful for us to look for several signs, as opposed to just one that might make such a conclusion obvious. For example, how long have things been awry, and to what extent? How many people are feeling aggrieved or experiencing tension because of the dispute? Have attempts been made, with successes or otherwise, to address the conflicts? Are the disputes deep-seated, long-standing or recently appearing?

If there is only one factor presenting itself, it should be a substantial one and should be a glaring one, such as a large amount of personal property or cash being unaccounted for or misappropriated. If that is the case, no need to keep reading, it is time to speak to counsel. To name one single issue factor, there is the question of whether the individual who created the trust had legal authority or capacity to create it.

For many people, the question of whether you require litigation should start with the purpose of the trust. Asking the question why and for whom the trust was set up will help determine when the conditions are ripe for litigation. Generally, trusts are established because they have advantages over wills and intestacy (Wills vs. Trusts: Which Should You Choose?)

Is the dispute springing from displeasure from persons who feel that they have received less than or none of what they expected? If this is the case, it is important to determine if they have had a chance to review the trust with someone who might objectively identify the benefits that the claimants should receive, and whether their expectations might have been imprudently grounded.

Other situations that arise are where onlookers believe that there may be elder exploitation, unnecessary conservatorships, or breaches of fiduciary duty. These are issues that we are seeing more of as the population ages. Beneficiaries, relatives, and conservatees are all owed concern, a duty of care, and have the right to challenge actions that are ill-advised. Sometimes just asking good-faith questions is sufficient to cure the problems.

In other instances, litigation is required. It often comes down to how much is at stake, whether measured in terms of finance, healthcare, or liberty interests. It is imperative to have a sense of the scale, and objective professionals, financial advisors or lawyers can help put things in perspective. While trivial mistakes might be discreetly ignored, intentional errors of a grave nature must be rectified, through informal dispute resolution methods, or litigation. Oftentimes early intervention can pay off in avoiding later issues and motivating the trustee to act more circumspectly.

Exploitation of elders

Unfortunately, there are cases around the state where elders are taken advantage of. Dishonest people take opportunistic or downright malicious advantage of elders. Elder abuse occurs when a person uses undue influence to coerce the elder into making bad decisions for the person’s benefit. There are innumerable situations where this can occur, and it is important to talk to a skilled financial advisor or attorney with broad-based knowledge and expertise in trust law.

Breach of Fiduciary Duty Litigation

Elder abuse from a person near the elder often overlaps with a breach of a duty by a fiduciary. A trustee owes a fiduciary duty to parties and sadly might have been placed in that position by someone who unduly influenced the grantor. This trustee or third parties could be involved in self-dealing or outright fraud. A skilled trust litigator will review trust accounting, which will be at the forefront of a court’s determination of impropriety. The litigator will also investigate the nature of the duty to determine if it has been breached. For instance, when a beneficiary becomes of age and finds out that a trustee took funds for personal use and recklessly mismanaged the endowment, a trust lawyer will examine all of the records, petition to replace the trustee, and seek to recover damages.

Issues related to Conservatorship

A conservatorship is usually started by a petition from a family member or loved one who is concerned by the behavior and health conditions of an individual, often when mental illness, dementia, drug or alcohol dependence combine to take away capacity to make daily life and important decisions. A conservatorship is often created in parallel with a trust, or after. If there are issues with the trust, there may be evidence of problems in the conservatorship as well.

Once You have Seen One Trust

Once you have seen one trust, you have seen one trust. There are numerous types of trusts codified in law and there are numerous ways to draft them, but one thing that they have in common is that they are all subject to litigation if things go wrong. Let’s take for instance See-Through trusts. We discuss them in our blog here (Estate Planning: Your Guide to See-Through Trusts).

Although it is a relatively simple estate planning instrument, changing beneficiaries could run one afoul of the law and frustrate the goal of reduced tax liability, in addition to frustrate the expectations of a removed beneficiary. It is not unforeseeable that litigation would be needed to correct mistakes.

Trust, but verify

The conditions that call for litigation are highly variable and not typically subject to a black and white analysis. For peace of mind, you should contact trust specialists and run your situation by them. If you have concerns about a loved one or friend and the events arising from a trust, please do not hesitate to contact a lawyer for legal assistance. Call the trusted estate planning attorneys at Lowthorp, Richards, McMillan, Miller & Templeman at (805) 981-8555 or fill out our online contact form. We operate primarily in the Tri-Counties area – Ventura, Santa Barbara, San Luis Obispo.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Cristian R. Arrieta, Lowthorp Richards McMillan Miller & Templeman, A Professional Corporation, 300 E. Esplanade Drive Suite 850, Oxnard, CA 93036