Asset preservation and trusts: Ensuring a fair distribution
Transferring one’s assets to future generations is a complex process full of potential pitfalls. Without thoughtful strategies in place, hard-earned wealth can fail to reach intended heirs and beneficiaries.
Carefully crafted estate plans aim to ensure a fair distribution according to the asset owner’s wishes, yet contesting a will or trust is an ever-present possibility. Trusts can help ensure assets are distributed fairly after the grantor’s death. Essential factors in creating an equitable trust include:
- Naming primary and contingent beneficiaries. Listing backup beneficiaries helps prevent assets from going to unintended recipients.
- Providing clear distribution instructions for the trustee to follow. Ambiguous language can create confusion and disputes over asset division.
- Using fractional interests versus dollar amounts. Fractional divisions maintain proportionate shares, avoiding manipulation of values.
- Granting limited discretionary powers to the trustee over distributions. This flexibility helps them adjust to unforeseen situations while limiting excessive control.
Preventing trust mismanagement
A dishonest trustee can misuse trust assets or unfairly distribute them in ways that undermine the grantor’s intentions. Various precautionary measures should be employed to avoid such exploitation and mismanagement of a trust.
Requiring regular account statements and inventories
The trust agreement can stipulate that the trustee must furnish all beneficiaries with regular, periodic account statements detailing the inventory of assets along with transactions involving the trust. Quarterly or annual accountings create essential transparency that deters financial malfeasance while confirming the trustee is acting in good faith and in accordance with duties.
Dividing trustee duties
Rather than concentrating control in one trustee, duties can be divided across multiple co-trustees. Segregating functions like trust administration, investment choices, and distributions inserts checks and balances so no single trustee holds unchecked power. It also necessitates consensus across co-trustees for significant actions related to asset management or wealth transfers.
Allowing trustee replacement
The trust document should permit beneficiaries to vote to remove and replace a trustee who has violated their fiduciary responsibilities or fulfilled duties inadequately. The threat empowers beneficiaries to take action to remove ineffective or malicious trustees. Care should be taken, however, to distinguish prudent trustees operating carefully and in good faith from those displaying legitimate negligence or ill intentions.
Using a corporate trustee
Hiring a reputable corporate trustee provides assurance that experienced professionals are administering the trust absent familial biases. Corporate trustees have fiduciary obligations safeguarded by legal standards, performance track records, and oversight regulations. This makes mismanagement less likely and provides beneficiaries with entity accountability standards.
Contesting a will or trust
Grounds for contesting
If beneficiaries believe the terms of a will or trust are unfair or contradict the grantor’s true intentions, they may be able to contest the arrangements in court. Reasons for challenges typically include:
- The grantor lacked proper mental capacity when creating the trust/will
- The grantor was unduly pressured into including certain provisions
- The trust/will is based on outdated information about beneficiaries
Legal arguments
A beneficiary contesting a trust or will should work with a trust litigation attorney. Common legal arguments include:
- The trust/will violates public policy against promoting divorce or separation
- Terms unlawfully discriminate against heirs
- Ambiguous language undermines the grantor’s distribution wishes
Burden of proof
The burden is on the contesting beneficiary to provide clear and convincing evidence against the validity of the trust/will. Given the complexity, bringing a qualified attorney on board is key. With their counsel, beneficiaries can develop lawful strategies to rectify the trust/will so it aligns with the grantor’s fair wishes.
