As estate planning tools, trusts have valuable benefits. They enable you to control how and when your property is distributed after you pass, reduce gift and estate taxes, and avoid the delays and costs of probate. The downside is that when a trust contains a significant amount of money and property, they can cause conflict.
In Texas, you can contest a trust or the trustee if you are one of its beneficiaries, and there are times when doing so is appropriate, especially if there is evidence of lack of capacity, undue influence or breach of fiduciary duty by the trustee. Below is an overview of common grounds for disputing a trust or challenging a trustee.
Lack of Capacity
State law requires that the trust grantor be mentally competent at the time the trust document is created. If they were suffering from mental illness or in the early stages of Alzheimer’s when they consented to the arrangement, you can contest the trust. In these cases, the probate court will want to hear from medical experts and witnesses who can attest to the grantor’s mental competency at the time they approved the trust.
If the grantor was unduly influenced by another party who stood to benefit from the terms of the trust, you can make the claim that the trust document does not accurately represent the person’s wishes for the management and distribution of their estate.
This could happen if an adult child threatened or otherwise manipulated an elderly parent into structuring the terms of the trust in their favor. The court will want to hear from parties who witnessed and/or can provide insight into the alleged acts of undue influence.
Breach of Fiduciary Duty
When a grantor creates a trust, they typically appoint a trustee to manage it. A trustee can be anyone the person chooses, such as a trusted friend, family member, attorney, or financial investment company.
Title 9 of the Texas state property code describes the duties and responsibilities of a trustee, who is legally obligated to follow the grantor’s wishes in making decisions regarding the estate.
If a trustee acts in a way that is negligent, disloyal, or contrary to the wishes of the grantor, they can be considered in breach of fiduciary duty and held responsible for any damage that results. Common examples of trust litigation arising from trustee misconduct include:
- Negligent administration of the trust: If a trustee fails to distribute the principal of the trust as directed in the terms of the agreement or declines to make required payouts, they may be held accountable for any damage that results.
- Self-dealing: Self-dealing occurs when a trustee takes advantage of their position and acts in their own interests rather than in the interests of the trust beneficiaries. Examples include borrowing from the trust, profiting from it, or participating in other transactions that benefit them personally.
- Mingling their finances with the estate. While this may not be irregular if the trustee is a family member, they are obligated to keep clear and accurate records and make all reasonable effort to create a distinction between their assets and those that belong in the trust. Failure to do so constitutes a breach.
- Failing to prevent a breach of trust. Co-trustees are jointly responsible for one another’s actions. If one fails to stop the other trustees from behaving in a way that constitutes a breach of trust, they can be held accountable.
What If the Trust Has a No-Contest Clause?
Many trusts have in terrorem clauses (also known as no contest clauses) stating that anyone who contests the trust will lose everything they would otherwise have been granted under its terms.
While this inclusion may make you understandably nervous about disputing the trust, the reality is that Texas courts are reluctant to enforce these types of clauses: no one wants to see a legitimate beneficiary disinherited because they have questions or concerns. Most courts observe a good faith exception, meaning that if you contest the trust in good faith, you don’t risk forfeiture.
Contact a Texas Trust Litigation Attorney
If you believe that a trust has been mismanaged or your deceased loved one was deceived, manipulated, or coerced into structuring the trust in a particular manner, let the trust litigation team at Romano & Sumner help.
As experienced estate litigation attorneys, we have the qualifications and experience to help you contest the trust and recover any assets lost due to manipulation or mismanagement. For more information, contact Romano & Sumner today.