Trust disputes

A trust is a legal arrangement whereby one or more people (trustees) hold assets for the benefit of other people (beneficiaries). Those assets are often property or other investments.

A trust is created by the settlor who transfers his or her own assets to the trustees, specifying how and for whom those assets can be used and what powers the trustees have. A trust can be created during the settlor’s lifetime, but can also be set up in his/her will (in which case the “settlor” is known as the “testator”).

There are many different types of trust, e.g. bare trusts, interest in possession trusts, discretionary trusts, accumulation trusts, settlor-interested trusts and non-resident trusts.

The law can also deem that a trust exists, even where no trust document exists. For example, a constructive trust arises where someone buys property and holds that property in his/her sole name, but for someone else (e.g. someone who has contributed in some way).

Why do trust disputes occur?

Trust disputes arise in a number of contexts, not all of which are actively contentious, including:

• Breach of trust and removal of trustees
• Disputes about trustee powers and duties
• Claims against the validity of a trust, including mistake
• Disclosure of trust documents and accounts
• Applications to vary a trust or for directions of the court
• Disputes between trustees or with beneficiaries
• Third party claims or attacks upon the trust (for example upon the divorce of a beneficiary)
• Negligent legal or tax advice when the trust was set up.

Decisions on whether trustees should get involved in disputes and how they should pursue them carry potentially serious personal cost consequences for trustees. Our team has experience in dealing with disputes in all of the above circumstances and many more.

We also work closely with our specialist Wills, Estate & Tax Planning team, and with our Trust Management team, and advise on preventative measures that can be taken by clients to try to avoid trust disputes.

What are the grounds for contesting a trust?

There are many different circumstances in which a trust may be challenged. There may be a claim against the formal validity of the trust (for example the settlor lacked capacity or the trust was a sham trust) or perhaps challenges relating to the administration and distribution of the trust, including decisions taken by trustees about how they have exercised their discretion, claims for breach of trust, trustee removals and accounts.

What happens if trustees disagree?

Generally, trustees must act unanimously. If trustees cannot agree on a matter which involves exercising their discretion, then an application for directions from the Court may be appropriate. Where a trustee is unwilling to act, however, or the trust administration is jeopardised, it may be necessary to consider removal of a trustee or replacement/substitution.

What can I do if I don’t agree with the terms of a trust?

If there are concerns over the terms of a trust, there may be grounds for an application to the Court for:

1. Construction of the document where the language is ambiguous or unclear
2. Rectification where there may be an error in the terms of the trust
3. An application to set aside the document on the grounds of mistake.

What can I do if a trustee isn’t acting as they should?

Trustees are in a fiduciary position and have extensive obligations to the beneficiaries of the trust. In the event that they are not fulfilling their duties, or are acting in breach, they may be personally liable to compensate the trust, provide accounts for their actions or face removal from the trust.