Estate disputes are an area of the law that can be broad, complex, and all encompassing making an experienced litigation attorney a must. Often family members cannot agree on the distribution of an estate or control of remaining assets. This can be a complex and daunting process with serious financial implications. The need for experienced counsel is critical.
The Luby Law Firm has substantial experience in the area of fiduciary litigation including Estate/Probate litigation. Estate disputes are an area of the law that can be broad, complex, and all encompassing making an experienced litigation attorney a must. The stakes can be high. And when control of trust assets or funds is at stake, those who appointed to positions of trust, sometimes develop their own agendas. Knowing your rights is critical.
Many people hear the word “probate” and assume that this area of law deals only with wills and Executors. In fact, matters in probate often involve a wide variety of important documents. Trusts and trustees are a very common example.
Trusts are typically described as the counterpart, or alternative, to an individual’s Last Will and Testament. In many ways, the two documents can work exactly the same. Both documents can be used to transfer a person’s property at their death. Both documents can appoint an individual to responsibly manage a decedent’s assets for the benefit of someone else.
Both documents can even be interpreted by the court when the language within them is unclear. And sometimes parties and Courts can have different views about the documents interpretation. But for all of their similarities in appearance and function, wills and trusts can be wildly different. No matter what, however, the interests of the beneficiary should always be paramount. Missouri Revised Statute 456.4-404 requires the trust to be for the benefit of the beneficiary
One of the most basic misconceptions we encounter regarding Trusts is the notion that the Trust is an entity – a legal fiction that comes to life the moment that a person signs one. The common mistake is that “the Trust” can do things, such as own and sell property, incur and pay debts and even prosecute and defend lawsuits. This simply is not true.
A Trust is often best described as a relationship, and the word “Trust” does a pretty good job of explaining how that relationship should work. When a person creates a Trust, the title to whatever property is going to be held “in Trust” is divided into two pieces. Legal title is held by the Trustee. He or she is the named owner of the land, house, car, boat, and so on. Beneficial or equitable title is held by the beneficiaries of the Trust. These are the people for whose benefit the Trustee owns the property. They are also the people to whom the Trustee owes certain and specific legal obligations.
The idea is that the Trustee will hold the trust property for the benefit of the beneficiaries, with obligations and instructions that come from Missouri Revised Statutes or the Trust instrument itself. Chapter 456 of the Missouri Revised Statutes is the paramount Missouri Statutory Authority on trust law.
Looking at it this way, it makes sense to recognize that the Trust itself cannot do anything. Legal rights and obligations exist on both sides of the relationship between Trustees and beneficiaries, and this relationship can often become the source of disputes and litigation.
Why Would a Person Use a Trust?
There are a number of reasons that a person might use a Trust rather than make an outright gift of property or leave property outright through a Last Will and Testament. Some basic and common reasons that a Trust might be used include:
- Extended “spendthrift” or “dead-hand” control of assets by the testator
- Matching the receipt of assets with the accomplishment of specific objectives by the beneficiaries (e.g. graduation from universities)
- Planning for disabled or potentially disabled dependents
- Avoidance of formal probate procedures
- Avoidance of probate procedures when property is owned in multiple states and thus susceptible to different probate laws
- Ensuring responsible management for the “irresponsible” beneficiary
- Anticipating future disharmony among the family (e.g. children that divorce or spouses that remarry)
- Deferral or avoidance of state or federal taxation
- To ensure that the financial needs of a beneficiary are taken care of and that funds are held, managed and invested, for the lifetime of the beneficiary.
- To avoid Medicaid payments and care for a beneficiary such as a special needs trust
Basic Terminology and Rules
In many ways, Trusts are a lot like people. They are similar in nature, but each can be customized for their own purpose – but always for the beneficiary. But for all of their differences, there are some basics that apply to every trust in Missouri. The key terms used throughout Trusts are largely universal, and we have the benefit of knowing where to look when a question about the Trust comes up.
- Beneficiary – Any person for whose benefit or partial benefit the assets are held in Trust. Broadly speaking, a beneficiary might include a person presently receiving Trust property, expected to receive trust property in the future (a “remainderman”) or an individual that only might receive Trust property if some specific event happens in the future.
- Trustee – The Trustee, or fiduciary, is the person that holds legal title to the property held in Trust. Their “fiduciary duties” broadly refers to those duties owed by the Trustee to the beneficiary and imposed by statute, common law or the trust instrument itself.
- Settlor – The person that created the Trust to begin with. This person might be referred to by a variety of names, including Grantor, Settlor, Testator or Trustor. The assets that they use to create the trust become the “corpus,” or principal property of the Trust.
- Trust Protector or Trust Advisor – A fairly new and common item in Trusts today is the use of a protector or Third-party fiduciary in the Trust instrument. Many states, including recently Missouri, have passed legislation on regarding protectors.
In terms of guidance, there are a number of sources of authority that every Trustee must look to when administering their Trust. Trust law is primarily a result of specific state law, but has its roots in long standing English Common Law going back to England. If Fiduciary duty is implemented as in most Trusts, knowledge of the common law fiduciary duties is essential. A Trust is void if it procured by Fraud, Duress or Undue Influence, and as indicated by Missouri Revised Statute 456.004.406.
The sources of guidance for the Trustee may vary greatly from one jurisdiction to another. In Missouri, the most common sources of a Trustee’s duties that will determine if he or she is acting appropriately or inappropriately are:
- The Trust instrument itself
- The Missouri Revised Statute Chapter 456
- Opinions of appellate courts on trust matters(Common Law)
- The Restatement (Third) of Trusts
- Law Reviews and Treatise on Trusts (Bogarts, Scott on Trusts)
We often look to these sources of authority in descending order. For instance, if the Trustee wants to engage in a certain activity, he would first look to the Trust instrument to see if that activity is specifically addressed. If not, the Trustee would look to the Missouri Revised Statutes that specifically deal with Trusts.
If there is still no answer, the Trustee would look to the history of cases in Missouri to determine if a court had ever faced and decided a similar issue. Finally, if there is still no answer, the Trustee might look to the Restatement. The Restatement of Trusts is intended to represent the consensus of the American legal community based upon the treatment of similar issues in jurisdictions from all over the country.
Common Disputes in Trust Matters
Many trust disputes can appear very similar to a conflict concerning a Last Will and Testament. There may be similar concerns of the Settlor’s ability to understand the trust instrument at the time he signed it. Or, the dispute might be focused on the language of the Trust itself, and whether or not the trust results in one conclusion or another.
In several cases, the conflict has nothing to do with the Settlor or the language of the trust document. Instead, the dispute might focus on the actions of the Trustee, and there might be claims of self-dealing, failures to account or a breach of fiduciary duty by the Trustee, Protector, Advisor, or other third party fiduciary. In some instances, the bank, investment advisor, or even a lawyer can be liable. Some common disputes in trust matters include:
- Challenges to a Settlor’s mental capacity
- Challenges to the terms of the will or the will itself
- Contesting the Will
- Challenges to the validity of the trust instrument
- Claims of undue influence over a Settlor, or beneficiary
- Failure to properly appoint a Guardian or oversee an estate
- Claims of forgery, fraud or mistake
- Actions to modify, reform, or amend a trust instrument
- Actions to terminate a trust
- Actions to judicially declare the rights and responsibilities of parties to a trust
- Claims of breach of fiduciary duty
- Actions to compel accountings from a Trustee
- Actions to remove and replace a Trustee
- Claims for damages for financial loss or waste
- Guardianship of a disabled beneficiary
- Improper Power of Attorney
A significant part of trust litigation focuses on the actions taken (or not taken) by the Trustee. Often, a Trustee will be granted wide discretion when dealing with trust assets, while other actions might be mandatory or prohibited.
When a person acts as Trustee, they take on some of the highest legal obligations that the law can impose on an ordinary person. The weight of these duties alone is often enough to convince many Settlors and Trustees to prefer the use of institutions, such as banks or trust companies to serve in these roles. Still, many Settlors often appoint trusted family members and friends to serve as Trustee, thereby often increasing the likelihood the Trust will not be properly managed. It is critical that fiduciaries uphold their duty : The core fiduciary responsibilities the most often breached, are:
The Duty of Reasonable Care
Every Trustee is obligated to use the same skill and prudence which an ordinary, capable and careful person would use in his or her own affairs. Under this duty, Texas Trustees have a duty to monitor and investigate anyone that they delegate for purposes of trust management, such as accountants or investment advisors.
The Duty of Good Faith
A fiduciary should always act in good faith and be faithful to the interests of the beneficiary and the trust purpose. Good Faith generally means, as in common usage, is ordinarily described that state of mind denoting honesty of purpose, freedom of intention to defraud, and generally speaking, means being faithful to one’s duty or obligation.
The Duty of Loyalty
Every Trustee is obligated to put the interests of the trust’s beneficiaries above his or her own. Self-dealing is a sure-fire way to land in a beneficiary’s (and judge’s) crosshairs or ongoing litigation. This litigation is often lengthy and labor intensive.
Self dealing, generally, is the conduct of a Trustee, attorney, corporate officer, or other fiduciary that consists of taking advantage of his position in a transaction and acting for his own interests rather than the interests of the beneficiaries of the trust, corporate shareholders, or his clients. Self dealing may involve misappropriation or usurpation of trust assets or corporate assets own by the trust. Self dealing is a form of conflict of interest.
Above all else, the Trustee is obligated to carry out the terms of the trust for the benefit of the beneficiaries, and not for his or her own gain. Trustees playing fast and loose with their duty of loyalty are inviting an unhappy beneficiary’s lawsuit.
The Duty of Impartiality
Trustees that occupy positions of trust to two or more beneficiaries are obligated to act impartially. They must take into account the differing interests of their beneficiaries, and playing favorites is not allowed. In the absence of some contradicting instructions in the trust instrument itself, the general rule is that all beneficiaries are created equal.
The Duty of Full Disclosure
Perhaps no single fiduciary duty is more important than the Trustee’s obligation to disclose all material facts affecting a beneficiary’s interest in the trust to a beneficiary. In most cases, this duty is directed at the Trustee’s obligation to inform and account, but disclosure often includes many other things, and Trustees should always be wary of holding information back from beneficiaries. Communication, and more specifically breakdowns in communication, is very likely the leading cause of trust litigation in Missouri and throughout the Country.
Duty to Manage and Invest
A fiduciary should always be looking for ways to preserve and make productive the trust property or assets. Missouri Revised Statutes Chapter 456.8.801-804 addresses this specifically. If this is not being done, a professional should be consulted.
Removal of Trustee
If the fiduciary duties of good faith, trust, care, confidence and loyalty, are at any time being violated, then removal of the trustee must be immediately evaluated and then considered. My office can help with this decision. Sometimes, as in some of the cases this office has seen, it may be too late and the damage could have already been done – leaving your only remedy as a suit for damages. A Trustee must always maintain the fiduciary reasonability.
Third Party Liability
In some instances, a third party fiduciary such as a trust protector, manager, or trust advisor, and even an attorney, can be liable to the beneficiary of a trust. The situation depends on the circumstances, but the areas of liability generally all stem from either the loss or control of trust funds.
For example, the failure to properly draft or amend a trust could leave an interested beneficiary without their inheritance. Another example might be where the failure to remove a trustee or appoint a proper trustee could lead to mismanagement of funds entitling one of the beneficiaries to a claim for damages.
The Negative Effects of a Breach of Fiduciary Duty
A breach of fiduciary duty can be devastating to a revenue-generating business, trust, or a grieving family following the death of a loved one. A position of power by a bank employee, a certified public accountant, a trustee, attorney, or other fiduciary has been abused. Instead of managing assets and finances with integrity and confidentiality, they chose to benefit themselves.
Gather Your Evidence
Remember, your case is only as good as the evidence you have to put forth. And when high dollar amounts are involved or control of substantial assets is at stake, you can be sure to encounter a formidable adversary. If the Trustee has engaged in misconduct, a cover up may be in the works. The best way to protect yourself and your financial interests is to accumulate as much evidence as you can.
In every dispute concerning a trust, there are a handful of basic and “must-have” pieces of information that will guide the dispute toward resolution. Whether requesting the authority of the Court to modify or terminate the trust, or suing a Trustee for a breach of his legal obligations, key evidence will include:
- The trust instrument
- A copy of any will
- Notes, files and perceptions of the Settlor by individuals familiar with the trust’s creation, and the Settlor’s intentions
- Financial records such as accounting and real estate documents
- Loan paperwork, real estate deeds, stock certificates, investment portfolio documents
- Accounting Records of the of the Trustee
- An Inventory or Schedule of Assets that identifies trust property and describes it sufficiently for a person to locate that property
- Records of communications with interested persons (including the Trustee, beneficiaries and creditors)
- Any and all witnesses or Affidavits – especially of there is an issue of undue influence or trust interpretation
- Medical Documentation of the beneficiary if the mental state is in issue
- Guardianship paperwork if the beneficiary is disabled.
Practical Advice & Concerns
How can a Trustee or beneficiary help their own case? For beneficiaries, the mantra is simple – be vigilant. The Trustee is obligated to manage the trust property on your behalf. They are guided by the trust instrument and the relevant law in Missouri. And they should be guided by common sense as well.
Never confuse their obligations to act under the trust with your best interests. Be watchful, be responsive to the Trustee’s requests for information and seek independent counsel when things appear to move off track. Keep as many records as you can and document everything including emails, financial records, medical records, etc.
The victims of Bernard Madoff thought they were in good hands. If a trustee is non-responsive or refusing to give information or if the funds in the trust are being spent in any way but conservatively, consult a lawyer – it is probably time for a trustee change.
For Trustees, the best practical step is to surround yourself with good advice. Trustees take on, often voluntarily, positions of significant responsibility and authority. While many trusts are handled without incident, beneficiaries (by their nature) can often be challenging to deal with, uncooperative or simply indignant to the idea that “their property” is held in trust. Upon accepting your position as Trustee, consider:
- Inventorying the assets of the trust
- Securing the property and protecting it from divorce
- Evaluating the property’s worth and insuring assets, when appropriate
- Determining the property’s most effective use (or determining the property’s directed use when the trust instrument speaks to it directly)
- Diversifying and investing prudently
- Retaining sound advice in legal matters, tax concerns and investing decisions, and delegating responsibilities, where appropriate
- Communicating (often and effectively) to beneficiaries
- Documenting your exercise of discretion, when discretion is permitted, remaining consistent, but most importantly, faithful to the trust purpose and the interests of the beneficiary.