While a Last Will and Testament remains the most used estate planning tool, a trust is not far behind in terms of popularity. Trusts are frequently included in a comprehensive estate plan for a wide variety of reasons, including the fact that it allows the settlor to retain more control over how assets are used. Can a trust be challenged by a beneficiary, however, in the same way as a Will? A Minot trust attorney at German Law Group explains when and how you might be able to contest a trust.
A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, as the name implies, does activate during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. The type of trust you create will depend on the purpose of the trust among other factors.
Contesting a Trust
You may be familiar with the concept of a Will contest wherein someone (usually a beneficiary or heir) challenges the validity of a decedent’s Will that has been submitted for probate. A Will contest can be costly – both in terms of time and money. The desire to avoid both probate and litigation is one of many reasons people often choose to rely predominantly on a trust to distribute their estate. Can that trust be contested though? The answer is “yes,” a trust can be contested; however, it is typically a more complicated process than contesting a Will.
Contesting a trust works essentially the same as contesting a Will. As with a Will contest, you cannot challenge a trust simply because you are not happy with the terms of the trust agreement. In other words, being left out of a trust is not a valid legal reason to challenge the trust. Instead, you must use one of the legal reasons allowable under state law which governs most issues related to wills, trusts, and estates. For example, you could challenge the Settlors capacity to create the trust. In this setting, capacity refers to the mental state necessary to establish the trust. You might also contest a trust by claiming that the Settlor was subject to “undue influence” at the time the trust agreement was executed. Improper execution and/or technical flaws with the trust agreement itself can also serve as the basis for a challenge to a trust.
To contest a trust, you will also have to have “standing.” Standing is the legal term used to refer to someone who has the legal right to initiate a legal proceeding. In the case of a Will or trust contest, a person must usually be a beneficiary, heir, previous beneficiary, or sometimes a creditor to have the standing required to proceed.
If you have standing and you believe you have a valid legal reason to contest a trust, a trust contest can be initiated by filing the necessary legal documents with the appropriate court.
Is There a No Contest Clause?
If you are contemplating bringing a trust contest, you also need to check the trust agreement for the addition of a “no contest” clause. A “no contest” clause effectively states that if a beneficiary unsuccessfully challenges a trust (or Will) that they forfeit the inheritance designated for them in the trust. Of course, the Settlor must gift something to that person in the trust for a no contest clause to work as intended. For example, imagine that a Settlor’s estate is worth $1 million, and he/she is concerned that a beneficiary might challenge the provisions of a trust. To discourage that challenge the Settlor could include a provision that gifts $50,000 to the beneficiary and add a no contest clause. The beneficiary forfeits that $50,000 gift if he/she contests the trust unsuccessfully. Because state laws govern the enforceability of a no contest clause, be sure to consult with an experienced trust attorney if you want to bring a trust contest.
Contact a Trust Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about contesting a trust, contact a trust attorney at German Law Group by calling 701-738-0060 to schedule an appointment.