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What Happens When There Is Litigation Between The Trustee And The Beneficiaries?

As discussed elsewhere on this site, the role of the trustee is complex and difficult.  The Trustee owes fiduciary duties to the beneficiaries of the trust, which involves the obligation of the trustee to act honestly, to account to the beneficiaries, to act in good faith and fair dealing with the beneficiaries, etc.  Often, the person who created the trust may have given specific instructions regarding the trustee’s duties. For instance, the trustee might only be allowed to distribute the trust’s income in a year, or the trustee might only be allowed to distribute a maximum of five percent of the trust assets in a year. Conversely, the person who created the trust may have given the trustee the discretion to determine the appropriate amount to distribute to the beneficiaries. The restrictions that might exist for a trustee could be endless, or they could be relatively few.

Despite all of the trustee’s duties and the restrictions that may be placed on the trustee, the beneficiaries of the trust may disagree with the trustee’s actions.  For instance, an 18-year old trust beneficiary might ask a trustee to pay for a new Porsche sports car, but the trustee may refuse to pay for the car because the money in the trust was to be used for education instead.  Trust litigation can frequently arise when a trustee refuses to expend funds in the manner that the trust beneficiaries requests, even if the request goes against the express purposes of the trust.  When those cases end up in formal litigation, both the trustee and the beneficiary generally end up with their own lawyers to litigate over whether the trustee properly exercised his discretion under the trust agreement to deny the request. If the court determines that the trustee acted appropriately, all of the trustee’s attorneys fees are paid from the trust.

For more information about this matter, call Ford + Bergner LLP at 713-352-0937 or send an email.