Trust Litigation: Key Challenges and Solutions Explored

Trust litigation is more common than you might expect.

40% of probate cases filed in Los Angeles County now involve trust litigation. And this percentage is rising year over year.

But here’s the kicker…

Most people assume a trust means no family feuding or expensive probate battles. The truth is, it can create an entirely new set of problems if not properly managed.

What You’ll Learn:

• The Simple Truth About Trust Disputes
• Breaking Down the Most Common Trust Battles
• Effective Solutions that Actually Work
• The Price of This Mess

The Simple Truth About Trust Disputes

Do you want to hear something that might surprise you?

Over 60% of people with $3-5 million in assets have created or plan to create trusts. And 81% of individuals with $10+ million already have or plan to establish trusts.

Sounds great, right?

Not so fast.

Creating a trust is no magic bullet that prevents family disputes. It just shifts the arena of conflict to trust administration and distribution.

Trust litigation is the legal process that ensues when beneficiaries, trustees, or other interested parties disagree over how a trust should be managed or distributed.

The worst part is, so many of these conflicts are preventable with proactive measures.

Breaking Down the Most Common Trust Battles

Trust disputes are no rare occurrence. In fact, they’ve got specific, repetitive patterns that crop up time and time again.

Trustee Misconduct

This is your number one culprit right here. Trustees have what’s called a fiduciary duty, which means they must act in the beneficiaries’ best interests at all times. If they mess up, they are liable. For help navigating trust litigation in Florida or anywhere across the country contacting legal professionals for assistance can go a long way. 

Typical scenarios of trustee malfeasance include:

• Using trust funds for personal expenses
• Making poor or unwise investment choices
• Failure to provide accounting or financial transparency
• Refusing to distribute assets when required by the trust terms

Capacity Challenges

Guess what’s another big one?

Contesting the mental capacity of the person who created the trust.

So what happens? Well, family members might notice sudden changes to trust provisions or see decisions being made that don’t make logical sense.

They start questioning if that loved one who signed those legal documents had the mental wherewithal to really understand what they were doing.

In the United States, Between July 2023 and June 2024, The United States Department of Justice and Federal Trade Commission, Office of Inspector General, identified more than 300 victims of elder financial abuse cases, 700+ defendants who stole nearly $700 million, and more than 225,000 elderly victims.

Undue Influence

Ew, let’s not even talk about this one. Undue influence occurs when someone exerts pressure or manipulation on the person who created the trust, causing them to make changes to the trust’s terms in that influencer’s favor.

Some tell-tale signs include:

• Complete and sudden isolation of the trust creator from family and friends
• Unexpected alterations to a long-established estate plan
• One beneficiary getting a disproportionately large share
• The individual who established the trust acting bewildered or confused

Trust Validity Issues

Sometimes, it’s the trust document itself that’s fishy. Maybe there’s no proper signature, or maybe some suspect foul play regarding fraud or forgery.

By the way, California law demands the trust must be signed by the trust maker in the presence of a notary public. If not, the trust could be rendered invalid.

Effective Solutions that Actually Work

Litigating over trusts doesn’t have to tear families apart. There are proven strategies out there that can help facilitate resolutions without getting stuck in years of costly court drama.

Communication is Key

Before anyone starts filing lawsuits, talk to each other.

It sounds painfully obvious, but in family feuds, this critical first step gets skipped so much more often than you might think.

Sit down as a family. Bring in an impartial third party if necessary. Get everybody’s grievances out in the open.

Sometimes you can avert a full-blown legal fiasco by just hashing things out, providing all points of view are heard.

Accounting Request

Suspicious about how a trustee is managing the assets? Demand a full accounting from the trustee.

Beneficiaries have a right to know how their interests are being handled. Trustees are obligated to keep accurate records and provide regular accountings.

An accounting should include:

• All incoming income and outgoing expenses
• Information about investment decisions and their performance
• Any distribution history of the trust assets
• A list of current trust property and its value

Mediation

This one can be a real game-changer. Mediation refers to a dispute resolution process where a neutral third party works with all the interested parties to help them find common ground and reach an agreement.

The biggest upside? You get to stay in the driver’s seat when it comes to making decisions, rather than ceding that power to a judge.

Mediation can also be much faster and cheaper than traditional litigation.

When to Draw the Line and Fight

Okay, so sometimes you just have no choice but to go to court. Like if the trustee is embezzling from the trust or engaged in some other serious misconduct.

If you take this route, make sure to do it smart.

Document everything. Keep copies of all correspondence, suspicious transactions, and any evidence of wrong-doing.

The Price of This Mess

Let’s talk about something that will absolutely leave you gobsmacked…

Trust litigation can end up costing tens or even hundreds of thousands of dollars. Complex cases that go all the way to trial can rack up bills in excess of $150,000.

Don’t even get me started…

Who’s paying for this ridiculous legal fee? In the real world, the answer is complicated. In many cases, the trust estate ends up foot the bill for both sides of the litigation. Meaning less for the intended beneficiaries.

Trustees have the right to use the trust property for legal defense, as long as they are not guilty of mismanagement or self-dealing. But if they lose and the court determines that they violated their fiduciary obligations, they may have to reimburse the trust.

Cost-Effective Litigation Strategies

Planning on taking this route? Here are some proven tips for keeping litigation costs under control:

Coordinate with other beneficiaries when possible. Splitting the legal fees between a few parties can help make litigation more affordable for everyone involved.

Look into contingency fee arrangements if you’re on the beneficiary side and just trying to get what you’re owed. Some attorneys will agree to take your case on a “no win, no fee” basis.

Set a budget and stick to it with your attorney. Negotiate your expectations in advance and track expenses throughout.

Prevention is Better Than Cure

The smartest move? Don’t get caught up in this nonsense in the first place.

If you’re the one creating a trust, hire knowledgeable professionals who understand how to ward off potential conflicts. Use clear and specific language in your trust document regarding distributions, successor trustees, and any other dispute resolution mechanisms.

Schedule regular trust reviews and updates to nip any budding issues in the bud.

Wrapping Up the Trust Mess

Trust litigation can be a nasty and convoluted thing. But once you know the most common issues and effective solutions, you can have the tools and knowledge to get through the challenge as best you can.

Trusts are supposed to be a force for good in families, keeping wealth together and protecting loved ones. When they end up the cause of family strife and expensive legal wars, that’s a major fail.

Recognizing problems early and taking decisive action is the best way to prevent disputes from spiraling out of control.

Don’t let trust litigation tear your family apart. Help is out there, and most of these battles can be won without sacrificing relationships or bankrupting everyone involved.

The bottom line: Trust litigation is far more prevalent than most folks realize. Smart planning and early intervention can save you time, money, and family ties.