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Trust Litigation Overview

Ready, Aim, Fire!

Why the best day in court may be the one that you avoid.

Trust litigation is a growth industry. People are more apt to question your decisions as a trustee than ever before. Many “lawyer up.” Younger generations are more likely to question, investigate, and retain counsel than our parents’ or grandparents’ generations. Whatever the reasons, a trustee faces the reality of potential disgruntled beneficiaries with each act, buy, sell or hold.

If you make a mistake, or breach your duties, you can be sued and mired in litigation instead of administration. No one wants this. No matter how tough you talk.

If you did something wrong, and you lose the lawsuit, you can be removed as trustee, ordered to pay damages, interest, attorneys fees and costs.

Being a trustee is like being a parent – don’t steal from your children, have their best interests at heart, and don’t pick favorites, or else they will act out, cost you your time, and harm you financially.

Our firm handles trust litigation. We tell trustees and beneficiaries the same thing: you need to be prepared, both personally (or mentally) and financially, for litigation. You will find it stressful and expensive. And there is no guarantee of the outcome. If you are not ready, litigation is not for you. The same thing holds true for being a trustee. It’s a job. Are you ready for it? Really ready for it?

Parents Just Don’t Understand: It’s Your Children’s Trust – Not Yours

Parents support children. Children don’t support parents.

That means that you can’t use your child’s trust fund for your new car. Or to finance a trip to Disney World. Period. No matter how much your new car will be used to comfortably drive your children around, and no matter how safe it will be for them. Children don’t purchase cars for parents. No matter how much your children will love Disney World, you have to pay for it: not your children’s trust.

Trustees Are Not Bulletproof

Some individual trustees just don’t know how much they can lose. At our firm, lawyers advise clients about the potential outcomes to a case. What do your best, and worst, days in court look like? How much can you win or lose? Often, trustees and beneficiaries embroiled in trust litigation don’t realize how much they can lose. And they are frightened by the prospect of having to pay thousands and thousands of dollars in attorneys fees to the other side.

As in any damage scenario, if you are found to have breached your fiduciary duty, you normally have to pay back lost profits or damages to the trust. You may also have to pay interest and the other side’s attorney’s fees. You would probably also have to pay your own attorneys from your own personal funds and not from the trust funds.

Punitive damages are only considered if a trustee has demonstrated outrageous conduct, such that the trustee should be punished. They may be considerably higher than the amount in controversy. However, punitive damages are seldom granted in cases of ordinary negligence. In the trust world, they typically only become an issue when the trustee has stolen funds, misappropriated them, intentionally ignored the trust document, or clearly abused its position of trust or engaged in acts of self-dealing.

The losing side must often pay interest, on top of damag.es. Interest can be significant and may be payable for a number of years.

Continuing Trustee Wrongs

Previously mentioned that beneficiaries must bring litigation against a trustee within the timeframe called for by the law (the statute of limitations). If a trustee has committed repeated wrongs on a continuing basis, the statute of limitations may not have ended. This means that, at least theoretically, a beneficiary may be able to bring a lawsuit for wrongs committed years ago – and years after a trustee believes the statute of limitations has ended.

You may not be aware that you are doing something wrong. And misguided mistakes can turn into a multiyear continuing tort.

Attorneys Fees

Litigation is expensive. As such, you should carefully analyze your position and your risk of liability if you are accused of wrongdoing. What’s the likelihood that you’re going to lose?

No matter how successful you are in your own profession or business, and no matter how tough you talk, you will find disputes and litigation stressful. I don’t think I have ever had a trustee tell me “Hey, that lawsuit was a blast. Let’s do this again sometime.” Litigation is expensive, even when you spend the trust’s money, and most people have better things to do with their time than litigate. Once you go down that road, you can’t turn back. Disagreements turn into family feuds. Any chance of reconciling is usually gone.

Truth be told, most people don’t want to serve as trustee if it will involve litigation. As much as I would like to think my clients like me, I know that, truthfully, they would rather spend less time with me in my office preparing for depositions, or handling discovery, or strategizing for hearings and trials.

The short of it all is that being a trustee is serious business. It involves blood (family) and money. The beneficiary of the trust is probably related to the grantor by blood or marriage. Trust litigation and, yes, even just plain old trust administration, often involves very deep and personal feelings, and perhaps animosities. It also involves money. Sometimes, quite a bit of money. My experience is that blood and money don’t mix well. The fight for blood and money is often only rewarding to the attorneys. I doubt that the grantor of the trust intended to make some attorney a trust beneficiary.

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