Some Trust Disputes Can Cost More Than Probate
From Mark J. Welch's Legal Advisory newsletter, Summer 1994
For example, a revocable "living trust" can avoid the cost and delays associated with probate. A will or living trust may also create a separate trust when one spouse dies, in order to shield up to $600,000 from later estate taxes.
Such trusts are designed to save money by avoiding probate fees and delays, and by deferring or reducing estate taxes.
But if there are disputes about the management of the trust, litigation can be very expensive. Trust litigation may also take longer than probate to uncover mismanagement or theft, thus reducing the odds of recovering lost property.
Normally, a trustee (the person administering the trust) is not subject to court supervision. However, a trustee or beneficiary may initiate a court action under California Probate Code section 17200.
The court can compel the trustee to account for the trust's assets and income, or to change investment and distribution policies to conform to the trust's instructions. In some circumstances, a court can replace the trustee, dissolve the trust, or make other changes to resolve problems.
Trust disputes have many different causes. A trustee may decide to pay himself a high fee, or may distribute trust property in a way that conflicts with the trust instructions. A beneficiary may want more money distributed, or may object that the trustee's investment strategy is too risky (or too conservative). Or a trustee may conceal information, so beneficiaries worry about possible mismanagement or theft.
One example of a very expensive trust dispute was reported in the February 1994 case of Wells Fargo Bank v. DiLeonardo. A beneficiary claimed that the trustee had not properly managed the trust, and had failed to act to protect the trust against another legal claim.
The trustee succeeded in having the lawsuit dismissed, but only after spending more than $350,000 in legal fees.
While such high legal costs are rare, the problems that arise from trust administration are not.
I regularly receive telephone calls from adult children who are concerned about the management of a "living trust" by a step-parent after a parent has died. The children are concerned, yet they are uncomfortable insisting that the step-parent provide information, especially if the step-parent is entitled to all income during his or her lifetime. The result may be resentment, alienation, and a loss of family harmony.
Such problems could be avoided by making sure all family members understand their rights and receive adequate information about the trust's management. Ideally, information should be shared before either parent dies.
If the beneficiaries are well-informed, they can more easily express any concerns about the trust's administration to the trustee, who can then act quickly to address those concerns properly without the need for lawsuits.
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