Trusts are becoming more and more popular as an estate planning tool for a variety of reasons. One of the primary benefits is to allow the administration of the estate to occur outside the purview of a probate court, which occurs if assets are to be distributed to beneficiaries under a will. Additionally, a will is a public document once it is admitted to probate, whereas the terms of a trust remain confidential. However, challenging a trust can make the decedent’s estate the subject of a public court trial. There are a few things to consider before you proceed.
Standing is a fundamental threshold each plaintiff must meet and is in essence the right to bring a lawsuit to court. The person bringing the suit must be affected by the events surrounding the case or must show some potential harm if the court doesn’t do something the plaintiff asks. Not just anyone has legal standing to challenge a trust.
The most obvious person who has standing is a named beneficiary. Certainly the nature and specific details of the terms of the trust may have a significant impact on a beneficiary, especially when compared to that which another named beneficiary may receive as a potential distribution.
Another typical plaintiff is one who is excluded from the trust but would stand to take as an heir if there were no trust or will under California’s laws of intestate succession. A living child of the trustor not named in the trust, for example, would be just such a plaintiff.
A person not closely related by blood or marriage not named in the trust will face an uphill battle to gain standing.
A proper plaintiff must have a legal basis to ask the court for the relief sough. Among the more common grounds for challenging a trust include:
- Competency of the trustor: This can become an issue when the trustor is an older person and perhaps showing signs of memory loss. The legal capacity to make a trust is different and more strict than necessary to create a will. A trust requires what may be deemed contractual capacity, which means the trustor must be able to understand and appreciate the nature and consequences of the decision being made by forming the trust.
- Undue influence: Often closely related to the issue of competency, undue influence involves taking unfair advantage of another person’s weakness of mind. The influencer coerces the person establishing the trust or changing the terms of the trust to do that which benefits the influencer. This type of scenario arises in many cases where a caretaker has a confidential relationship with the trustor, often to the exclusion of the family and friends of the trustor.
- Fiduciary duty of the trustee to adhere to the terms of the trust: Most trusts are created to allow the trustor to act as the initial trustee and retain the ability to change the terms of the trust during his or her lifetime. At death, the trust becomes irrevocable, and the successor trustee must explicitly follow the terms. Implementing the successor trustee’s own ideas on administering the estate, for instance, could lead to a trust challenge.
- Fiduciary duty of the trustee to maintain and account for trust assets: Some estates that are larger and somewhat complex may remain unsettled for some time. The successor trustee has a duty to manage the trust assets in a manner so as not to diminish their value and increase it if possible. During the administration of the estate, the trustee must make regular accountings to all interested parties.
If a person files suit to have the court direct the trustee to comply with the terms of the trust, it is not technically a trust challenge, but it falls within the category of potential trust litigation.
A typical no-contest clause holds that should a beneficiary under the trust challenge or contest the trust or some portion of it, the contester shall be deemed to have predeceased the trustor and thus take nothing under the trust. As a logical matter, if a person is excluded entirely from a trust, he or she risks nothing by contesting the trust. But does a named beneficiary realistically assume a risk in bringing a challenge? That is, do courts actually enforce no-contest clauses? As a practical matter, the answer is not very often.
An exception where the court may be tempted to enforce the no-contest clause is if the judge believes the challenge was brought frivolously. A litigant who brings an action with reasonable evidentiary support and in good faith will not likely suffer a potential loss of assets the litigant would have received under the trust, even in the event the contest is unsuccessful.