Probate & Trust Law Section Conference Manual ... - Minnesota CLE

--volatility in the financial markets, leading to below-market investment returns which
places stress on the long-term financial viability of trusts and increased scrutiny of
investment decisions on the part of the trustee;
--failure to carefully consider the nomination and appointment of trustees, resulting in
inexperienced or incompetent individuals serving in that role;
--growing litigiousness where people are less reluctant to sue experienced individuals or
professional fiduciaries serving as trustees;
--old-fashioned greed! A growing sense of entitlement and a lack of patience to delay
receipt of financial benefits.
Common Areas of Trust Disputes
Disputes can arise in a variety of situations. There are, however, some common issues
which seem to consistently surface in situations involving the use of trusts. These
include the following:
--Issues surrounding the validity of the trust itself, including whether the grantor had the
requisite capacity to establish the trust in the first place, whether the document was
appropriately signed and executed, or whether the grantor was unduly influenced in
setting up the trust.
--Fiduciary issues addressing whether the trustee breached any of their duties to the
detriment of the trust beneficiaries, including such questions as whether the trust assets
were invested appropriately, whether distributions were inappropriately made, whether
the trustee engaged in self-dealing, or whether the trustee failed to follow the terms of
the trust document or committed fraud.
--Disputes among beneficiaries, including whether the interests of contingent
beneficiaries are being taken into consideration, whether spouses from subsequent
marriages are given preference over beneficiaries from a prior relationship, and whether
children are depleting trust assets to the detriment of later generations. Family
businesses often generate disputes where some of the trust beneficiaries are actively
involved in the business and others are not.
A good example of a situation that, if not handled appropriately early on, may lead to
disputes among beneficiaries is the use of “pot” trusts. This type of trust holds assets
for a number of different beneficiaries, but instead of dividing into separate shares for
each of the respective beneficiaries, the assets are held in one “pot” accessible by
multiple parties. Pot trusts can be useful where the beneficiaries are similarly situated,
close in age and/or where the trust’s benefit is the same for all the parties, such as for
educational expenses. However, where the trust is intended to continue for a long time,
it may be more beneficial to split the trust into separate shares for each beneficiary.
2