Trusts are often considered a secure form of estate planning. While that is generally true, there are still a few things that can cause a trust to be challenged and end up in litigation.
Who can Challenge a Trust?
Only someone with “standing”, also known as an “interested person” can challenge a trust. An interested person who is someone who:
- Is a named beneficiary of the Trust
- Would benefit if the Trust was found invalid
Interested persons may include spouses, children, heirs, devisees, or anyone who may have a claim against the estate.
Grounds to Challenge a Trust
Lack of Capacity
Challenging a Trust on the basis of capacity typically requires showing that the decedent did not understand the nature and extent of the property or the identity of natural heirs. Typically, this kind of challenge is backed by medical evidence showing mental impairment.
A challenge of undue influence means the decedent did not make the Trust of free choice, but solely due to the improper influence of another person.
A Trust can be challenged for fraud, such as when the decedent’s signature is forged. Sometimes a Trust that has been previously revoked is mistakenly administered.
Lack of Execution
Each state has its own laws, but generally a Trust must meet the following elements to be considered valid:
- The Trust is in writing (not verbal)
- The Trust is singed by the Grantor (the person who created the Trust)
- The Trust is signed and stamped by a notary
If a Trust lacks any of the above elements, it becomes susceptible to challenge.
If a creditor comes forward and makes a claim against the estate, it could delay administration of the trust and potentially end up in litigation.
Removal of Trustee
A Trustee can be removed for incapacity, wrongdoing in the administration of the Trust, or breach of fiduciary duty. Removal of a Trustee will always delay administration and is usually ordered by a court.
How Can You Avoid Challenges and Litigation?
Use a Lawyer
Always use a lawyer to create an estate plan. Cheaper online methods do exist, but hiring a professional is the best way to ensure that: 1) your assets are truly protected, 2) the trust follows current law, and 3) that your wishes are carried out legally and correctly.
Trusts are created by humans and humans make errors. Your lawyer and their staff will proofread the estate plan, but you should, too. The smallest error in trust language could have huge ramifications, including affecting trust administration and opening the Trust up to challenges.
Laws change often, so the general recommendation is to review and/or update your estate plan every 3-5 years, or at any major life event (marriage, divorce, children, career change, etc).
If you are looking to set up a living trust, give a law firm a call today. Most offer free one-hour consultations with an experienced estate lawyer in Phoenix, AZ.
Thanks to Kamper Estrada, LLP for their insight into estate planning and challenging trust.