Trusts are a popular estate planning tool many use to manage and distribute their assets to their loved ones. However, they can also be contested, which is when someone challenges the validity or terms of the trust. This process can be complicated and contentious, often requiring legal action and court intervention.
This blog will explore how exactly trusts can be contested and the steps you can take to prevent this from happening.
Why Create a Trust?
Trusts are for everyone, no matter the size of your estate or your financial goals. Here are some great reasons to establish a trust as part of your estate plan:
- Asset protection – When assets are held in a trust, they are typically protected from creditors and lawsuits, as the trust, not the individual, owns them. Creditors or plaintiffs can only reach assets if they can prove they were fraudulently transferred into the trust, protecting them for your loved ones.
- Avoiding probate – Probate is the legal process by which a deceased person’s assets are distributed to heirs or beneficiaries. It can be time-consuming and expensive and expose family finances to public scrutiny. By creating a trust, assets can pass directly to beneficiaries without going through probate court.
- Tax planning – Any assets you transfer into trust legally no longer belong to you. Therefore, when your Inheritance Tax bill is calculated after you pass away, its value is not counted so that you can pass on more to your loved ones.
- Control over distribution – A trust can control how and when assets are distributed to beneficiaries. A trust is an excellent option to provide for a beneficiary over a longer period or ensure that assets are used for a specific purpose (such as education or healthcare).
You can establish a range of trusts depending on your needs, such as family protection trusts and protective property trusts. Consult The Planning Bee today for more advice on which trust is right for you and your goals.
Why Contest a Trust?
There are many reasons why someone may choose to contest a trust:
- The settlor was influenced by others when creating the trust
- The settlor did not have full mental capacity when creating the trust
- The trust was established on fraudulent or misleading information
- The terms of the trust are unclear, and there is uncertainty about the settlor’s intentions
A trust may also be contested if the trustees have breached their duties and obligations. Trustees are legally obliged to manage the trust properly on behalf of all the beneficiaries involved, and failure to do so can lead to severe legal and financial consequences. If someone has mismanaged funds, used funds to their benefit, or failed to pay a beneficiary income from the trust they were entitled, this could be grounds for a claim to be made.
If there are issues with one of the trustees managing your assets, it may be possible to change or remove them. You can give one of your beneficiaries the power to do so, but trustees can also be changed if they:
- Pass away
- Are incapable of performing their duties due to illness
- Want to step away from their duties
The court also has the power to remove trustees and will do so in cases of misconduct. In other cases, trustees can be removed if their relationship with the beneficiaries breaks down to the point where they cannot properly administer the trust.
Preventing Trust Disputes
Thankfully, there are many ways that you can limit a trust dispute from occurring, even when you have passed away:
- Leave clear instructions – A lack of clarity around your trust can confuse both trustees and beneficiaries, leading to doubt and confusion. Consider exactly what you want from your trusts, such as if you want to keep providing for a partner or spouse or let a loved one remain in your property after you pass away, and consult an estate planning professional to establish one that meets your needs. Leave some clear instructions for your trustees so they can’t be misinterpreted and reduce the risk of a dispute.
- Consider your trustees carefully – Many trust issues stem from trustees mismanaging your assets. Selecting reliable people you know will handle your assets well and treat all your beneficiaries equally can provide greater peace of mind and limit the chance of a dispute. If you do not want to appoint a family member or loved one, consider using a professional, such as a solicitor. This can be a pricey option, so consider all routes before deciding.
- Assure your mental capacity – Doubts about your mental capacity at the time you created the trust could lead to disputes that affect your loved ones. However, obtaining certification from a medical professional such as your GP that you have total mental capacity can prevent this from happening.
Trusts are a great asset to use when estate planning. However, like Wills, they can be contested, and issues can arise with trustees and assets.
The Planning Bee is here to help. Book a free consultation with our professional estate planning team today to discuss your goals with trusts and how we can protect your assets and minimise the risks of your trusts being contested.