A trust is a financial arrangement, drawn up to hold property, funds or other assets for another party or parties. These parties are the beneficiaries, or owners of the contents of the trust but are not in a position, or do not wish to, own them outright. For example, they may not be of adult age or could have some kind of impairment that prevents them from being considered responsible enough to make decisions about the assets by themselves. Other reasons for establishing a trust include estate planning, inheritance tax arrangements, medical planning or charitable giving.
When a trust dispute arises
Trusts can offer many benefits, not when it comes to tax planning. However, as with any legal arrangement, things can go wrong and disputes can arise. Disagreements over the running of the trust, allocation of funds or future plans can all lead to a trust dispute. Accusations of mismanagement or misaligned priorities amongst the trustees can also cause issues that can impact negatively on the running of the trust. Other issues can centre around beneficiaries feeling left out of key decisions, sudden changes happening without the full agreement of all parties, accounting discrepancies and allegations of fraud or undue influence.
How to resolve a trust dispute
Trust disputes can be complicated and take a while to resolve, so it is highly advisable that trustees engage legal support to help all parties navigate their way through. There are a number of options for resolving a trust dispute, and a solicitor specialising in trust law can explain the benefits and processes involved in each one.
1. Settling Out of Court
This is a preferable outcome for trustees wishing to settle quickly and with minimum disruption, costs and upset. It relies on all parties involved in the trust dispute to come to an amicable agreement, with or without mediation or other professional input. While this is by far the most straightforward option to take, anyone involved has the right to reject proposed out-of-court settlement terms and request that the matter be dealt with by a court of law instead.
Filing a lawsuit is another way to resolve a trust dispute. This involves both sides of the disagreement providing evidence and preparing their case to put before the court. This option takes longer to resolve and can be more expensive, especially if legal representation is required in court. A judge must rule on the trust dispute, using the evidence and arguments presented to them to make their decision about which side of the dispute to agree with.
This can also be a good option for resolving disputes around the validity of the trust. For example, if there are doubts that it was set up for the right reasons, was instigated by someone without the mental capacity to understand the consequences or found to be a sham.
3. Trust Reform
Trustees have the right to discuss reforming the terms of the trust if this is felt to be a viable way to resolve a dispute. Confusing wording, obsolete terms and conflicting priorities can all cause problems and give rise to disputes if not dealt with properly. Sometimes, trustees can pass away or decide to step down, while conditions laid out in the trust wording can become irrelevant or out of date.
Asset portfolios protected by the trust can change too, meaning that different conditions must be placed on their management under the terms contained within the trust document. Reforming the troublesome parts of trust can often be the best way to settle a dispute.
4. Removing Trustees
A common cause of a trust dispute is where one or more trustees feel that a fellow trustee has not acted in the best interests of the trust. In this case, it could be best to remove the contentious person from the agreement altogether. It is important to check that the terms of the trust entitle trustees to do this and to seek legal advice on the best way to do so to protect innocent parties. Again, a law court can act to remove a trustee found to be actively harming the trust and its beneficiaries or operating in breach of its conditions.
Under the Trustee Act of 1925, there are other situations where a trustee can legally be removed, including if they die, become incapable of performing their duties, are under legal adult age or simply wish to be discharged of their obligations.