Trusts are a common estate planning tool used in California. They can be used to distribute assets to beneficiaries after a person's death, and they can also be used to manage assets for minor children or disabled adults. However, trusts can be complex, and there are a number of ways that they can be challenged in court.
The two biggest trust challenges found in court in California are:
- Breach of trust: A breach of trust occurs when the trustee fails to manage the trust assets in accordance with the terms of the trust or with the law. This can include failing to invest the assets properly, making unauthorized distributions to beneficiaries, or using the trust assets for personal gain.
2. Undue influence: Undue influence occurs when someone uses their power or influence to pressure the testator (the person who creates the trust) into changing the terms of the trust in a way that benefits the influencer. This can be done through threats, coercion, or manipulation.
In addition to these two main challenges, there are a number of other ways that trusts can be challenged in court. These include:
- Testamentary capacity: Testamentary capacity is the ability to understand the nature of a trust and to make rational decisions about the disposition of one's assets. If a testator is found to have lacked testamentary capacity when they created the trust, the trust may be invalidated.
- Fraud: Fraud can occur in a number of different ways in the context of trusts. For example, a trustee may commit fraud by forging the testator's signature on the trust agreement or by misrepresenting the value of the trust assets to the beneficiaries.
- Self-dealing: Self-dealing occurs when the trustee uses the trust assets for their own personal benefit. This can include investing the trust assets in the trustee's own business or using the trust assets to pay for the trustee's personal expenses.
Public cases that illustrate challenges made against a decedent's estate or the successor trustee
There are a number of public cases that illustrate the types of challenges that can be made against a decedent's estate or the successor trustee. Here are a few examples:
- In re Estate of Michael Jackson: In this case, the children of Michael Jackson challenged the will and trust that he created before his death. The children alleged that the will and trust were invalid due to undue influence and fraud. The court ultimately upheld the will and trust, but the case illustrates the types of challenges that can be made against a decedent's estate.
- In re Estate of Anna Nicole Smith: In this case, the son of Anna Nicole Smith challenged the will and trust that she created before her death. The son alleged that the will and trust were invalid due to undue influence and lack of testamentary capacity. The court ultimately upheld the will and trust, but the case illustrates the types of challenges that can be made against a decedent's estate.
- In re Estate of Bernie Madoff: In this case, the trustee of Bernie Madoff's estate was challenged by the victims of Madoff's Ponzi scheme. The victims alleged that the trustee had breached his fiduciary duties by failing to invest the trust assets properly and by making unauthorized distributions to beneficiaries. The court ultimately found that the trustee had breached his fiduciary duties and ordered him to repay the victims of the Ponzi scheme.
These are just a few examples of public cases that illustrate the types of challenges that can be made against a decedent's estate or the successor trustee. It is important to note that every case is different, and the outcome of a trust challenge will depend on the specific facts and circumstances of the case.
How to avoid trust challenges
There are a number of things that can be done to avoid trust challenges. Here are a few tips:
- Choose the right trustee: The trustee is the person who is responsible for managing the trust assets. It is important to choose a trustee who is trustworthy and who has the experience and expertise to manage the trust assets properly.
- Have a clear and concise trust agreement: The trust agreement is the document that sets out the terms of the trust. It is important to have a clear and concise trust agreement that is easy to understand.
- Keep good records: The trustee should keep good records of all trust transactions. This will help to avoid disputes and challenges to the trust.
- Review the trust regularly: It is important to review the trust regularly to make sure that it still meets the needs of the grantor and the beneficiaries.
If you have any concerns about a trust, it is important to consult with an experienced estate planning attorney. We have had numerous engagements in this capacity over the years and why our elderly clients prepare for changes in their plan or new plans by getting a statement of sound mind from their attending physician.