Whether you have a disagreement with another beneficiary, are concerned that a trust is being mis-managed, or you are a trustee and your actions are being challenged, our guide explains the relevant trust dispute issues to be aware of.
What is a trust dispute?
Any disagreement regarding the administration of a trust is defined as a trust dispute. This can encompass conflicting opinions about the interpretation of a trust, issues with feuding beneficiaries, accusations of mis-management against trustees and debates regarding the value of the assets held in the trust. Unfortunately, even where a trust has been created with extreme care to avoid any disputes, it can still be the subject of litigation.
What is a ‘friendly dispute’?
If all parties to the trust recognise that there is a problem which needs to be resolved – often to do with the way the trust is structured or interpreted – this is known as a ‘friendly dispute’. As a neutral party, the trustee would usually be entitled to have their costs covered by the trust throughout any proceedings.
What is the first step in instigating a family trust dispute?
The first step in bringing a dispute involving a trust is to compile all relevant documentation, such as any trust deed or relevant will. Due to the parties involved, the relationship dynamics can make such disputes incredibly emotional and stressful for all. It is imperative to remain calm in order to obtain the best possible outcome in the quickest time. Trusts are a complicated area of law, obtaining legal advice at the earliest opportunity is crucial.
Can a trustee be removed from a trust?
One of the most common types of trust dispute arises where beneficiaries feel that a trustee has acted improperly. If you wish to remove a trustee from a trust the first option would be to check the trust documentation to see if any other party – such as a beneficiary – has been given the power to do so.
The Trustee Act 1925 also allows for a trustee to be replaced upon certain conditions, including if the trustee:
- is dead
- remains outside the UK for over 12 months
- wants to be discharged of their duties
- is unfit or incapable
- is an infant
The court also has the power to remove a trustee and will do so in cases of serious misconduct. In instances of mere hostility between trustee and beneficiary, they are much less likely to intervene, though it does depend on all circumstances, including the nature of the trust assets.
It may also be necessary to remove a trustee if the relationship between the trustees has broken down such that they are no longer able to take decisions collectively or administer the trust.
What are the grounds for making a claim against a trustee?
It is the legal duty of the trustee to manage the trust properly for the benefit of each of the beneficiaries equally. Failure to do so can lead to serious financial consequences and potential civil or criminal charges against the trustee. Claims can be made against a trustee when they have:
- mismanaged or dissipated trusts funds;
- used the trust funds for their own benefit;
- prevented a beneficiary accessing funds or assets that they are entitled to under the trust;
- failed to pay a beneficiary trust income that they are entitled to;
- not disclosed trust information that they should have; or
- otherwise acted in breach of the trust or allowed a co-trustee to act in breach of the trust.
What is a ‘Beddoe Order’?
Where there is a hostile dispute involving a third party, the trustee will be liable for their own costs and will potentially be at risk of liability for the costs of the third party. Whilst they may ordinarily be able to rely on an indemnity from the trust assets, the beneficiaries may challenge this, particularly if they lose the litigation. Trustees will often therefore apply to court to sanction them bringing or defending a claim and directing how they ought to proceed. This is known as a ‘Beddoe Order’; the effect is that the trustees will be entitled to use the trust assets to fund the litigation without risk of challenge.
What are the grounds for a beneficiary disputing a trust?
Much like wills, there are several grounds for beneficiaries to challenge the validity of a trust. These include:
- the settlor was not mentally capable when they created the trust;
- the settlor was subject to undue influence when creating the trust;
- it is not suitably clear as to how to interpret the trust documentation;
- the trust was improperly formed;
- the trust is a sham;
- the trust needs to be modified or reformed.