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New York & North Carolina

Common Trust Disputes

Parisi, Coan & Saccocio, PLLC

Trusts are valuable tools in estate planning, offering benefits such as asset protection, tax minimization, and privacy. However, despite their advantages, trusts can sometimes become sources of conflict among beneficiaries, trustees, and other parties involved. Understanding the common types of trust disputes and the measures to prevent them can help individuals safeguard their assets and ensure a smooth administration of their trusts.

1. Mismanagement of Trust Assets

Trustees have a fiduciary duty to manage the trust assets responsibly and in the best interests of the beneficiaries. However, disputes often arise when beneficiaries believe the trustee mismanages the assets. Common issues include:

  • Investment Decisions: Beneficiaries may challenge the trustee’s investment choices, claiming they are too risky or do not yield adequate returns.
  • Diversion of Funds: Allegations that the trustee is using trust funds for personal gain or unrelated purposes.
  • Lack of Transparency: Insufficient communication or failure to provide regular accounting statements can lead to mistrust and accusations of mismanagement.

Asset mismanagement disputes can be mitigated by choosing a trustee with a solid financial background, providing clear investment guidelines, and ensuring regular, transparent reporting to beneficiaries.

2. Breach of Fiduciary Duty

A trustee’s fiduciary duty includes loyalty, prudence, and impartiality. Breach of this duty can lead to significant disputes. Common allegations include:

  • Conflict of Interest: Situations where the trustee’s interests conflict with their responsibilities to the trust.
  • Self-Dealing: The trustee engages in transactions that benefit themselves at the expense of the beneficiaries.
  • Favoritism: Treating some beneficiaries more favorably than others, contrary to the terms of the trust.

Choosing an impartial trustee who clearly understands their fiduciary responsibilities is crucial. Additionally, including specific provisions in the trust document that address potential conflicts can help prevent these disputes.

3. Interpretation of Trust Terms

Disputes can arise from differing interpretations of the trust’s terms. Ambiguous or vague language can lead to conflicts over:

  • Distribution Provisions: How and when the trust assets should be distributed to beneficiaries.
  • Trustee Powers: The extent of the trustee’s authority and discretion in managing the trust.
  • Conditions and Requirements: Specific conditions beneficiaries must meet to receive distributions.

Drafting the trust document with precise and unambiguous language is essential to avoid such disputes. Consulting with an experienced estate planning attorney can help ensure the trust terms are clear and comprehensive.

4. Changes to the Trust

Modifying or revoking a trust can lead to disputes, especially if beneficiaries believe the changes were made under undue influence or without proper authority. Common issues include:

  • Amendments and Revocations: Disagreements over whether the trustor had the mental capacity to make changes or whether external parties influenced the changes.
  • Successor Trustees: Conflicts over the appointment or removal of trustees, especially in cases where the trustor’s intentions are unclear.

Including clear procedures for amending or revoking the trust and documenting the trustor’s intentions and capacity during changes can help prevent these disputes.

5. Beneficiary Rights and Distributions

Beneficiaries may dispute the trustee’s decisions regarding distributions, often believing they are entitled to more than what is being provided. Common disputes include:

  • Distribution Timing: Disagreements over the timing and amount of distributions.
  • Eligibility and Conditions: Conflicts over whether beneficiaries have met the conditions required for distributions.
  • Misunderstanding of Rights: Beneficiaries may not fully understand their rights under the trust, leading to conflicts with the trustee.

Providing clear guidelines in the trust document regarding distribution criteria and timing and ensuring beneficiaries are well-informed of their rights and the trust’s terms can help reduce these disputes.

6. Trust Termination

Disputes can arise when it is time to terminate the trust and distribute the remaining assets. Common issues include:

  • Final Accounting: Disagreements over the final accounting of the trust’s assets and expenses.
  • Asset Valuation: Conflicts over the valuation of assets to be distributed.
  • Residual Beneficiaries: Disputes among residual beneficiaries over their shares of the remaining assets.

Trust termination disputes can be minimized by ensuring accurate and transparent record-keeping throughout the trust’s administration and by seeking professional appraisals for asset valuations when necessary.

Working with an experienced estate planning attorney is essential for creating a well-structured trust, choosing appropriate trustees, and implementing strategies to prevent conflicts. Our attorneys offer the guidance needed to achieve this. Call 914-228-7448 or contact us to schedule your consultation today!