Technically, no, you cannot sue a trust. It is not a person, but a legal entity, but you can instead sue the trustee, the person responsible for the management and upkeep of the trust.
There are many rules that apply to suing a trust. It’s a highly involved process that depends on the principles of law as well as the facts in each particular case.
Beneficiaries who believe that they have been treated badly should inform themselves of their options before initiating a lawsuit. That’s what we’ll do with this article. We’ll show you how trusts work, their legalities; the structure which underpins it and your grounds for litigation.
Quick View Of Trusts
It’s important to understand what a trust is and how it works before you try to sue a trust. After all, once you know its purpose, you’ll be in a better position to make a judgment call about how to proceed with your litigation.
What is a Trust?
A trust is a fiduciary relationship in which one party, known as the trustee, holds legal title to the property, while another party benefits from that property, known as the beneficiary. All the assets have been placed in the trust by someone called the grantor.
The grantor creates the trust through legal trust documents that articulate its terms, goals, and control. Trusts can contain a variety of assets, including cash, real estate, stocks or personal property.
Trusts are popular for many of the same reasons as LLCs. They’re used for asset protection, estate planning, charitable contributions, and succession plans. One benefit of the trust system is it allows for an easy transfer of assets that avoids probate attention — and, in certain instances, estate taxes.
In addition, trusts offer a degree of confidentiality that wills do not. Unlike wills, which often become public records when the grantor dies and thereby reveal information about the family's financial affairs to others, trust settlements are rarely made public.
Different Types of Trusts
Trusts come in many forms, each created to fulfill different goals. There are as many different versions of trusts as you could imagine, but here are some of the most popular options.
Revocable Trusts:
The donor can change or cancel trust operations during their lifetime, which gives the grantor some flexibility in dealing with assets. But they lose all asset protection from creditors and lawsuits.
Irrevocable Trusts:
These trusts, once established, cannot be altered or revoked without the beneficiary's approval which means you see more asset protection. But you give up control of your assets permanently, which might not work for everyone. Can you sue an irrevocable trust? If you believe that the trustee isn’t doing their job, then yes, you can sue this kind of trust.
Testamentary Trusts:
These trusts are created as part of a will and only become active when the grantor dies. They help with the distribution of the estate.
Living Trusts:
Created while the grantor is still living, these trusts can be beneficial in bypassing probate or managing assets promptly after the grantor dies. There are no delays in passing along assets through a living trust.
Trusts can also be customized with certain provisions to handle distinct situations, such as special needs trusts that support individuals who have a disability without compromising their ability to receive help from the government.
A charitable trust is another example where the grantor receives income from the trust during their lifetime and ultimately leaves the remaining assets to a charity upon death. This not only satisfies their philanthropic desires but can have substantial tax advantages as well.
The Legal Perspective About Trusts
It’s all well and good to say that trusts do this and trusts do that. But what do the courts say? Do they agree that someone sue a trust? Yes, they will hear your case. And this will help you understand your rights about lawsuits against the trust.
Trust Laws and Regulations
The legal framework that governs a trust is subject to specific state law, with multiple variables between each state and jurisdiction. But there are some similarities.
The most notable one is the UTC (Uniform Trust Code), which focuses on setting forth general principles governing trusts, their formation, management, and termination.
It is worth noting that the fiduciary duty of the trustee, which means putting your beneficiaries first, is pretty much one of those signature trust laws. That’s a non-negotiable, no matter what state you’re in.
Can you sue a trustee? Yes, you can if you believe that they’ve mishandled the trust and not fulfilled their duties. A trustee’s duties include managing and investing trust assets, maintaining clear communications to accounting, and following the intention of trust as stated in the terms of the trust itself.
Failure to meet these obligations may result in legal consequences. And this is why you can’t sue a trust, but you can sue a trustee. Ultimately, all the responsibilities for the trusts’ actions and operations fall on the trustee. Legally, they are held accountable for the trust’s actions.
Beneficiary Rights And Responsibilities
Trust beneficiaries have specific rights, such as the right to know how well a trust is performing and a complete asset accounting of the trust. They also have the right to make sure the trustee is following their duty under the law as well as the trust contract.
Knowing these rights can help to give a beneficiary the confidence that they have legal recourse in the event their rights are violated or if the trust is being improperly administered. If a beneficiary feels that the trustee is not acting in their best interest or has committed what is known as “trustee self-dealing”, they have many recourses.
The beneficiary can ask the court for an accounting and potentially petition to remove a trustee if the wrong is bad enough. This highlights why it is so crucial to be informed and proactive when a trust is involved because beneficiaries who know their rights can better protect themselves and make sure the trust works as intended.
Grounds for Suing a Trust
Can someone sue a family trust? Yes, it's possible, if you can prove that you’ve met certain grounds. With all that in mind, you should know when and how you can sue a trust (or in reality, the trustee). Here is what the courts say are the legal foundations for suing a trust.
Breach of Fiduciary Duty
If the trustee fails to act in good faith for the benefit of beneficiaries, then he would have legally breached his fiduciary duty. This is the primary goal of a trust.
For instance, self-dealing is when the trustee stands to gain from their role at the expense of the trust. Or they could invest in risky positions that could result in significant losses for beneficiaries. But what if the grantor is the trustee, like in a living trust? Can a living trust be sued? The distinction of trusts doesn’t matter,if the court agrees that the assets are mishandled or the trustee is compromised.
This might also take the form of favouritism, in which a trustee may show preferential treatment to one beneficiary over others, effectively violating the equal distribution that the trust's creator intended.
In a breach of fiduciary duty lawsuit, beneficiaries may bring a claim against trustees. If successful, the court can order the removal of the trustee, recouping lost money, or in particularly egregious situations, punitive damages.
Mismanagement of Trust Assets
Mismanagement can come in the form of faulty investment decisions, failing to adhere to terms of trust agreements, or misappropriating funds. Mismanagement can put beneficiaries at risk, and cause massive financial losses.
What does this look like? A trustee may take high-risk investments without authorization from the beneficiaries. This risks unnecessary loss of funds and undermines the trust objective to financially secure surviving family members.
If beneficiaries suspect that trust assets are being mishandled, it is essential to compile financial records that can be used as evidence in a court of law. If there was a finding of undue influence, the court would order an accounting and potential restitution by the trustee, or possibly replace the trustee going forward.
Another option might be to enlist the assistance of a trust attorney who can help navigate the complexities of trust law, They will ensure that beneficiaries’ rights are protected, and see that the trust is managed in a way that truly meets its purpose.
The Process of Suing a Trust
Can you sue a trust fund? Of course you can, given that you’ve met the requirements to bring the trust to court. If you’ve satisfied the courts that you have a case against the trust, then here’s how you would sue a trust.
Suing a Trust
Filing a lawsuit against a trustee has to be done in the right way. In the first place, it is required that beneficiaries need to file a civil suit in the court with the same jurisdiction. The suit should clearly lay out the grievances against the trustee with legal backing.
Second, it is very important to produce the appropriate evidence that proves the wrongdoing. It could be documentation of the financial transactions, perhaps trust agreements, and any communication you have had with the trustee.
Most often, it is recommended that you hire a trust litigation attorney to make sure your complaint holds water and meets all the requirements of law. It can often be difficult to wade through some of the complexities that go along with understanding trust law. An attorney can help explain the rights and responsibilities of a beneficiary as well as how a trustee must respond to your suit.
Legal Processes and Constraints
The legal system is long and winding, littered with hearings, mediation and negotiation before finally ending at trial. These proceedings will be subject to objections and other hurdles in their circuitous route toward resolution. In our experience, trustees won’t hesitate to fight the lawsuit, and they could drag out the proceedings even longer.
But remember that legal fees and expenses add up very quickly. You might need to take them into account as justice might be unaffordable for some beneficiaries.
Role of a Trust Litigation Lawyer
Trust litigation attorneys are equipped to deal with the nuances of trust law, helping their clients navigate legal disputes involving trusts. Standard trust litigation attorneys can be used to evaluate the veracity of a claim, conduct discovery (if needed) and develop legal recommendations or strategies.
You’ll need legal representation for mediation, negotiation of settlements, and preparing for trial if it gets that far. Due to the emotional and financial elements at stake in trust litigation, an attorney is more necessary than suggested.
These lawyers often will do anything humanly possible in order to protect their client's rights in the face of such misfortunes. A trustee can seem powerful and untouchable, but a lawyer’s job is to show you that your rights allow you to sue the trust and trustee for what’s fair and just.
How to Choose a Trust Litigation Lawyer
Choosing the right attorney is key when it comes to securing a favorable resolution in any trust-related dispute. These are just some of the key criteria for finding the right attorney.
- Experience:
When searching for a lawyer, try and find an attorney who has experience in trust cases to guarantee that you have someone who knows what to expect and how these cases normally go. - Reputation:
Review client reviews and references to determine past performance and client satisfaction. - Communication:
Make sure the lawyer you hire is going to be honest and transparent, keeping you up-to-date during each step of the process.
Selecting the right attorney increases the possibility of a favorable outcome to your trust lawsuit case. It also might be helpful to think about how the attorney views the resolution of conflict.
For instance, some attorneys may prefer collaborative methods that can yield faster and less contentious resolutions. They might opt for mediation for a quick result. But other attorneys may be more inclined to fight it out before a judge if they are backed into such a corner. Which would you want in your corner? This will help you choose the right attorney with the right strategy and style to fight the case.
Suing a Trust: Is It Worth It?
A trust is designed to protect the rights of the beneficiaries and protect the value of the assets inside. But often when the original grantor is gone, the interpretation of that design can be cloudy.
If you feel like your rights as a beneficiary are being ignored, you have the right to sue the trust and the trustee. Because once the grantor has passed away, it’s up to you to fight for what’s right and fair for your financial future.
If you’re interested in talking about setting up your own trust, we can help. Fill out the form below and we’ll reach out to talk to you about the right trust for your situation.
