Avoiding Conflict Between Trustees and Beneficiaries

A trust’s purpose is to protect its assets, but it can only do so if the trustee maintains a good relationship with the beneficiaries. Any dispute between a trustee and a beneficiary can strain the relationship, complicate trust administration, and potentially trigger legal action. However, with the right trustee and a properly structured trust, you can minimize the risks of conflicts that could lead to personal strife or other challenges.

If you’re unsure who to name as trustee and how to navigate delicate interactions with beneficiaries, discuss your situation with an experienced trust lawyer at 453 Trust Powered by Pennington Law. Our nationally acclaimed lawyers understand the complex considerations involved in establishing an effective trust, including the management of relationships between trustees and beneficiaries. Contact our law firm today to learn more about our trust services. The first consultation is free.

Common Reasons Trustees and Beneficiaries Disagree and How to Prevent Them

Disagreements between trustees and beneficiaries can arise for various reasons. Some of the most frequent causes of conflicts over trust management include:

• Ambiguous trust language: A trust document may contain unclear or vague terms. When this happens, trustees and beneficiaries may interpret the grantor’s intentions, the trustee’s authority, or the beneficiaries’ distribution rights differently. Trust creators can avoid conflicts caused by ambiguous trust language by consulting with an experienced attorney to ensure precise and comprehensive provisions in the trust instrument.
• Valuation disputes: Beneficiaries and trustees may dispute the value of specific trust assets, which can impact the amount beneficiaries are entitled to receive. Parties can avoid these disagreements by retaining independent appraisers.
• Alleged mismanagement: Trustees are legally responsible for managing trust assets ethically and in compliance with applicable trust laws. Allegations of mismanagement or breaches of fiduciary responsibilities can escalate into legal action and calls for a trustee’s removal. Trustees can reduce the risk of such claims by keeping thorough records of their actions and keeping accurate records of the trust’s finances.
• Lack of transparency: Beneficiaries may complain about a trustee’s lack of communication or transparency regarding the trust’s finances. Trustees can avoid issues by providing regular accountings to beneficiaries and timely responses to inquiries.
• Distribution delays: Beneficiaries may raise concerns about delayed distributions, even when a trustee must pause distributions due to debts, taxes, or legal claims against the trust. Regular communication between trustees and beneficiaries can minimize the frustrations that come from payment delays.
• Perceived unfairness: Trustees must remain impartial. Disputes may arise when one or more beneficiaries believe a trustee has treated other beneficiaries more favorably. Trustees can avoid these complaints by adhering to the trust’s terms and maintaining open lines of communication to explain decisions and actions to all beneficiaries.

How Clear Communication Helps Avoid Conflict Between Trustees and Beneficiaries 

Clear communication between trustees and beneficiaries can go a long way towards preventing conflicts. Many disputes arise because beneficiaries feel left in the dark about how the trust is managed or the reasons for a trustee’s actions. Maintaining an open line of communication between a trustee and the trust’s beneficiaries allows beneficiaries to seek satisfactory explanations for issues and avoid potential disputes or trust litigation.

Why Regular Trust Accounting and Reporting Build Better Relationships

Beneficiary disputes often arise from a perceived lack of transparency in the trust’s finances. When beneficiaries believe trustees are being too vague about the trust’s funds, they may suspect misconduct, such as misappropriation of assets, self-dealing, or mismanagement. Providing beneficiaries with periodic financial reports can help show the trustee is fulfilling their fiduciary duties in accordance with the trust’s terms. 

Legal Options When Trustee-Beneficiary Conflicts Cannot Be Resolved

Many trustee-beneficiary conflicts can be resolved through informal negotiations or alternative dispute resolution methods like mediation. However, trustees and beneficiaries still have options if these approaches don’t work. Potential options for parties who cannot agree include:

• Trust document remedies: The trust document may provide specific legal remedies or resolutions, such as entitling beneficiaries to an accounting or including a “no contest” clause that prohibits trust-related litigation.
• Legal action: Trustees or beneficiaries may file a lawsuit to have a court decide a dispute.
• Dissolution of the trust: When a trustee-beneficiary conflict frustrates the trust’s essential purpose(s), an interested party may petition the court to terminate the trust. If the court determines the trust’s purposes cannot be achieved, the trust may be dissolved.

Whether you are a trustee or beneficiary of a trust, it’s wise to seek legal representation if you become involved in a trust dispute. An attorney with experience in trust law can review your situation and guide you as you decide your next steps.

Ways to Resolve Trustee-Beneficiary Disputes Without Going to Court

In most cases, trustees and beneficiaries want to avoid going to court to resolve a dispute. Going to court is more expensive, and all proceedings are public, reducing the privacy benefit of a trust. Other options for resolving a trustee-beneficiary dispute without pursuing formal litigation include:

• Informal negotiations: Trustees and beneficiaries may negotiate a settlement of issues or disputes giving rise to a conflict.
• Mediation: A neutral mediator can facilitate settlement discussions between the parties.
• Arbitration: When provided for in the trust document, the parties may submit a dispute to arbitration for a ruling by a neutral arbitrator following a private hearing, during which they can present their evidence and arguments.

Steps Beneficiaries Can Take to Address Concerns With Trustees

Beneficiaries can also take proactive steps to raise concerns with trustees before formal disputes arise, such as:

• Reviewing the trust document: A trust document may authorize beneficiaries to receive periodic reports about the trust’s finances. Beneficiaries should review the trust to confirm whether they have information rights that entitle them to that information.
• Opening a dialogue: Even if the trust document grants beneficiaries specific information rights, they are legally entitled to ask questions and receive clear answers from trustees within a reasonable timeframe.
• Gathering prior records: Beneficiaries should collect and review prior accountings and other trust documents to better understand the current situation.
• Seeking legal counsel: An experienced trust attorney can help beneficiaries evaluate their legal options, especially if a formal legal claim or lawsuit appears to be the next step.

Contact Us for Legal Guidance on Managing Disputes Between Trustees and Beneficiaries

A conflict between trustees and beneficiaries can undermine the relationship between the parties and threaten the trust’s effectiveness. Working with experienced legal counsel can help you identify the issues that led to disagreements and evaluate strategies to resolve the problems.

The experienced trust attorneys at 453 Trust Powered by Pennington Law are seasoned professionals who focus on trust law, estate planning, asset protection, wealth preservation, tax law, and financial planning. Whether you are preparing to set up a trust, serving as a trustee, or a beneficiary seeking answers to questions about a trust, we are here to help. Contact us today for a free consultation.