Do you have trust issues, or are they issues with your trust?
Trusts don’t manage themselves, so it is important to be aware of issues that may need special attention — and that could require litigation.
For some of us, the term “trust fund” conjures images of private jets and private islands, lavish lifestyles that are only available to the rich and famous. The truth is that you do not have to be a Hilton or a Kardashian to establish a trust or to be the beneficiary of a trust. Trusts are estate planning tools available to anyone as a way to reduce estate tax obligations, to make sure a loved one with a disability is taken care of or to accomplish any number of other objectives.
Unfortunately, the truth is that even Hiltons and Kardashians can run into trouble with how a trust is managed. Whether the trustee is a bank, a committee or just one person, issues can come up that require the help of an attorney.
There are three parties to a trust: the trustor or grantor, the beneficiary and the trustee. Any of these may be a person, more than one person or, as we said, an institution.
The trustor is the owner of the property at the heart of the trust; it is the trustor that establishes the trust. The trustee is the person or entity that looks after the trust, that makes sure that the trustor’s wishes are honored. The beneficiary is the person or entity that the trust was established to benefit — the child whose college tuition will be paid for out of the trust or the university that will be able to continue its research into a cure for cancer.
The trust itself is just a piece of paper. It documents the trustor’s intentions, the assets and liabilities that comprise the trust, the trustee’s responsibilities and the rights of the beneficiary.
What can go wrong, and how can you fix it?
Because a trust is not a person or an organization, it cannot be held responsible if the funds are mismanaged or misdirected. The trustee, however, is the legal owner of the trust property and can sue and be sued.
A trustee has a fiduciary duty to act in the best interests of the trust. If there is an issue, then, that threatens the health of the trust, the trustee may take legal action. If the trustee acts in his own interests rather than in the interests of the trust or the beneficiary, the trustor or the beneficiary may take legal action.
Trustee as plaintiff
A trustee may need to collect a debt on behalf of the trust or enforce a provision of the trust. For example, Bob designated his trust as the beneficiary of his life insurance policy, but when he dies, the life insurance company delays or denies payment. The trustee must act to resolve the dispute, and that will likely require more than a phone call. This is when a trustee would work with an attorney to settle the matter.
Trustee as defendant
Not every trust is a bequest, and not every trustor is long dead and buried when the trust goes into effect. The trustor, then, may be able to keep track of the activities of the trust and the trustee. If something looks fishy, the trustor may take action.
For example, Shirley has established an irrevocable trust to pay for her grandchildren to visit Disneyland and Disney’s California Adventure twice a year. Rather than naming a person as trustee, she named a bank. One year, the bank refuses to pay for the trip. Shirley may file a petition to enforce the terms of the trust.
Suppose, however, that Shirley has died and the bank refuses to pay for the trip. The beneficiaries may sue the bank to enforce the terms of the trust.
If the bank misuses the funds, the trustor and the beneficiaries have the right to sue for breach of fiduciary duty. Whether the bank paid itself outrageous fees, used the trust to finance an illegal scheme or used the trust to finance a foolish venture — say, buying the Golden Gate Bridge — failing to act in the best interest of the trust and failing to safeguard the trust constitute a breach of fiduciary duty.
The first step in handling a trust issue
This is by no means an exhaustive list of possible issues. Call Buffington Law Firm for a free, no-obligation consultation with one of our experienced trust dispute attorneys. All such calls are entirely confidential.