What Is a Trust?
A trust is an arrangement created usually by deed which involves an individual’s assets, such as property, cash and shares, being placed in the legal ownership of another party or parties known as trustees. These trustees assume responsibility for managing and safeguarding these assets for the benefit of designated individuals, referred to as beneficiaries.
Upon transfer of property or money into a trust, the trustees become the legal owners of these assets, and the original transferor relinquishes ownership. Consequently, the assets no longer form part of the transferor’s estate, and they relinquish control over and interest in the assets, unless they themselves are named trustees or beneficiaries.
Trusts are often recommended as a means for individuals to safeguard their assets either during their lifetime or posthumously, particularly if they wish to avoid direct inheritance by family members. There can sometimes be tax efficiencies when trusts are used.
Establishing a Trust
The specifics of this arrangement are typically outlined in a legal document called a trust deed. This document will expressly state the extent of the trust property, the identities of the trustees and beneficiaries and will outline the extent of the trustees’ authority over the assets. Occasionally, the “trust deed” may not be a separate document; a trust might be established through an individual’s Will.
Often, the trust deed is accompanied by a document produced by the creator of the trust, known as a letter of wishes, which expresses their desires regarding the assets’ distribution, such as allocating greater amounts to specific beneficiaries and giving guidance to the trustees as to when they may exercise their decision-making powers in favour of particular beneficiaries. However, this letter is merely advisory in nature; trustees are not bound by it and may choose to follow their own judgment. This discretionary aspect can lead to conflicts as it gives trustees the ability to decide and sometimes their decision-making can be challenged.
Common Types of Trust Disputes
Even with meticulous planning, including carefully choosing your trustees and providing clear guidelines, trust disputes can still arise. As significant powers and discretion vested in trustees concerning asset management, disputes can emerge due to differing interpretations of what to do for the best and why. Often, trusts can appoint various family members as trustees and/or beneficiaries, and naturally, each of them will have distinct and potentially conflicting perspectives on asset distribution, exacerbating conflicts and sparking disputes.
Trust disputes usually fall into two primary categories:
- Disputes related to the removal of trustees.
- Claims for financial compensation from a trust.
Actions to Take in Case of a Trust Dispute
Although the individual who initiated the trust might have taken legal advice when the trust was initially formed, such guidance may not be applicable to the issues involving the current trustees or beneficiaries if the initiator is no longer involved, such as in cases where they have died.
If you find yourself concerned about a trust, whether as a trustee or beneficiary, seeking legal advice promptly is essential. Trustees bear significant legal responsibilities outlined in the trust agreement, and acting swiftly is crucial to avoid personal liability for any losses incurred by the trust.
Beneficiaries, on the other hand, aim to safeguard their position and the security of trust assets.
Our team of specialised trust dispute attorneys is equipped to address any trust-related concerns you may have.
For more information on trust disputes, don’t hesitate to consult with our expert, Lewis Hastie.