To understand what the best practices are for preventing disputes, it is important to identify the most common types of trust-related disputes, and then discuss the best practices to help prevent each type:
Most estate and trust-related disputes stem from trust administrators who fail to carry out his or her duties properly. This failure is referred to as a breach of fiduciary duty.
The person creating the estate plan should be careful in their fiduciary selection by focusing their attention on selecting candidates who are most likely to be diligent, honest, and prudent in acting as fiduciaries. Clients should also be aware of issues that can arise when family members are put into fiduciary roles which allow them to control or affect the interests of other family members.
Estate planning documents should be very clear regarding beneficiaries’ rights and the rights and responsibilities of the fiduciaries, to help ensure that both beneficiaries and fiduciaries are clear about what and how frequently information should be provided, what investments and other transactions may be made, and what rights beneficiaries have with regard to distributions from the trust.
Finally, estate planning documents should provide ways for beneficiaries to remove a bad fiduciary without having to bring a lawsuit.
Another common form of trust-related disputes stem from the validity of a trust. Validity is often challenged by showing (i) the person signing did not have the required minimum knowledge and awareness to make the document legally valid (ii) a provision in the trust is not a true expression of the intent of the creator or (iii) the creator was unduly influenced by a third party. Here are some good practices to prevent these types of disputes.
- knowledge/awareness: Know what steps are required to ensure that the trust is signed correctly. If there’s any question about mental capacity of the trust creator, get a doctor to write them a note affirming their capacity. If they are not able to be given a doctor’s note that affirms capacity, it is better for the trust creator to know early on. In this case, they can simply name a successor trustee to help create the family trust and/or estate plan to ensure the validity. They can even name their estate planning attorney.
- Intent of Trust Creator: A careful estate planning attorney will walk the trust creator through considering the overall plan and trying to ensure that the creator’s actual intent is clearly expressed in the documents. To further secure the validity of the document, get a second independent attorney to issue a certificate of review. A court is very unlikely to invalidate an estate plan that two different attorneys have certified.
- Third-Party Undue Influence: Avoid future accusations of undue influence by keeping all beneficiaries out of the estate planning process. Instead, use your long-time estate planning attorney. Keeping beneficiaries out of the process
A trust creator should let family, heirs, and beneficiaries know what their goals are and why. Having these conversations early on with people who will be affected may be a proactive way to address the plan and set expectations early on.