Trust Disputes
Challenging a trust
Disagreements can arise between trustees and beneficiaries concerning trustees' decisions regarding how to distribute trust assets or how they've invested them.
Beneficiaries may disagree with the trustees' approach. There can also be issues with third parties, such as an individual who considers they should be included as a beneficiary of the trust or considers the trust owes them money.
Whether you are a trustee, a beneficiary, or a third party, such disputes can be time-consuming and costly. Various options are available to all parties to resolve them, either with or without the court's involvement.
With extensive knowledge of all aspects of contentious probate and trust disputes. We can offer proactive and cost-effective solutions to complicated disputes.
Our team consists of members of the Society of Trust and Estate Practitioners and the Association of Contentious Trust and Probate Specialists (ACTAPS). Our team are also ranked by the Legal 500 and Chambers & Partners High Net Worth guide for private wealth disputes.
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What is a trust?
In a trust, assets are held and managed by one person or people (the trustees) to benefit another person or people (the beneficiaries). They can be created by a single person (the settlor), either during their lifetime or on their death by their will, or they can be created by more than one person or a company. The person(s) who create the trust will gift assets to the trust, which will be managed by the trustee(s) to benefit the beneficiaries.
What is a trust dispute?
A trust dispute occurs when there is contention about the trust.
This could be because the trustees are unable to work together or because the beneficiaries do not trust the trustees.
Or it could be that a third party (someone unrelated to the trust) considers they have an interest in the trust or a claim against it.
Meet the trust dispute team
Craig Ridge
Partner and Head of Contentious Probate
Joseph Martin
Senior Associate - Contentious Probate
Georgia Stott
Senior Associate - Contentious Probate
Trust disputes we deal with
We are able to deal with all disputes that fall within the jurisdiction of the courts of England and Wales. This includes:
- Applications for a trustee's removal
- Applications for an inventory and account (which is a request for a court order that the trustees must disclose specific information relevant to the trust)
- Applications for blessing orders (where a trustee is seeking to make a decision regarding the trust, but the beneficiaries are not supportive, so they require the approval of the court)
- Claims against trustees for breach of trust
- Applications for directions from the court (where the trustees are considering their options, or a beneficiary considers trustees should be taking a particular course of action, and there is disagreement as to which option is best)
- Claims by third parties against a trust
- Claims that a trust is invalid, or does not reflect the settlor's true intentions
Again, this list is not exhaustive. There may be another type of application that is more appropriate in certain circumstances. As long as it falls within the jurisdiction of the courts of England and Wales, we should be able to assist.
Defending a trust dispute
We do not only act for those looking to make a claim. We also act for those defending them. Sometimes, allegations made by a co-trustee, beneficiary or third party are not justified.
In particular, the relationships between trustees and beneficiaries can be difficult, as one is responsible for managing assets that benefit the other, leading to disagreements. Just because a beneficiary is unhappy with a trustee's decision, for example, does not mean the trustee made the wrong decision. It will come down to the facts of the particular case. Equally, a co-trustee may criticise a trustee for what they perceive to be a lack of cooperation, but there are often two sides to each story.
Trustees need to consider carefully whether they defend a claim. The specific circumstances will heavily influence the appropriateness of doing so but will also depend on the type of claim made. A trustee should, where appropriate, act independently and neutrally in the best interests of the trust as a whole.
As such, if all the beneficiaries agree that the trustee should be removed, it would likely be unwise to defend such a claim. To do so could be perceived as being self-serving. We recognise that often trustees feel a duty to the settlor to carry out their wishes, but the decision as to whether to defend has to be based on what is in the interests of the trust.
In contrast, if the claim is attacking the assets of a trust, a trustee must consider the claim and make the necessary investigations, as they are responsible for protecting the trust assets. If they were to concede, the beneficiaries could criticise them for failing to comply with their duty to protect the trust. However, they should consult with the beneficiaries and, where appropriate, the court to ensure their actions are approved. This ensures they are protected against criticism for how they respond to a claim.
Concerning claims that their decisions were inappropriate, the best way to prevent this is to seek the approval of the beneficiaries/the court before making any significant decisions. However, if this has not been done, a trustee must respond with openness (to the extent appropriate) and cooperate with any court proceedings to prevent being criticised for acting in conflict with the interests of the trust.
What are the main types of breach of trust?
Trust breaches occur when trustees don't act according to their duties as trustees. Trustees have specific obligations and responsibilities, some imposed by law and some specific to a particular trust (depending on what the settlor requests). They must comply with them as they are managing the trust for the benefit of other people.
The main types of breach of trust are:
- Failing to act independently by putting their own needs first or by prioritising the needs of one beneficiary over another when it is inappropriate to do so;
- Failing to comply with the terms of the trust, for example, by failing to make distributions when/to whom they are required to and
- Dealing with trust assets inappropriately.
Grounds for removing a trustee
There may be various reasons why someone may wish to remove a trustee. It could be that a trustee feels their co-trustee is being uncooperative or acting in breach of their duties as trustee. Or it could be that a beneficiary is concerned about the action a trustee is taking. Either way, if the matter is contentious, you have to establish a very good basis for their removal before applying to the court, as courts are only willing to remove trustees if there is a good reason for doing so.
Grounds for removal may include:
- A trustee is not acting independently, favouring one beneficiary over another in circumstances where it is inappropriate to do so, or they are acting in their own interests rather than the interests of the trust;
- A trustee is being uncooperative and/or uncommunicative, such that a co-trustee cannot reasonably work with them, or a beneficiary loses faith in them;
- A trustee has made a negligent decision in terms of how they have invested a trust asset;
- The trustees have fallen out, such that no decisions are being made, and the beneficiaries are suffering as a result;
- A trustee is no longer in a position to act as trustee (for example, their personal circumstances may have changed).
This list is not exhaustive. There may be other legitimate reasons why it is inappropriate for a trustee to be removed. The key point is that you have to establish that there is a good enough reason, such that the court will not criticise you for seeking a trustee's removal where there were other, more appropriate options available.
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How to dispute a trust
If someone is contemplating making a claim in relation to a trust, whether as trustee, beneficiary or a third party, the first step is to investigate their concerns. A claim can only realistically be made if the evidence supports your position. Therefore, it is crucial that you gather as much evidence as possible. This may involve asking other parties to disclose certain information/documents.
Once the evidence has been gathered, assuming it is sufficient to proceed with the claim, you must comply with the court's rules by explaining to the defendant(s) what your claim is and its basis in a document called the 'letter of claim'. They have to be allowed to consider the claim and respond.
Usually, after the letter of claim has been sent and a response received, the parties will try to narrow the issues between them through correspondence. For example, one party may concede certain arguments once further evidence has been provided.
The next step is to try to resolve the remaining issues without involving the court. Courts expect parties to try and avoid court action if possible, as it is time-consuming and costly. Parties may try to reach an agreement by way of correspondence, or they may look to arrange a mediation.
Mediation is when the parties engage in formal negotiations with an independent third party (the mediator) to try and bring the parties towards agreement. There is no expectation that the parties will talk directly; all communications are usually through the mediator. Mediations can be held in person (i.e. the parties and mediator are all in the same building but not the same room) or virtually.
If agreement is reached, a legally binding agreement can be signed. An alternative to mediation is an FDR (Financial Dispute Resolution) Hearing. This can only happen after court proceedings have been commenced. In contrast, a mediation or settlement by correspondence can happen at any stage before or after proceedings are commenced, as long as no final court order has been made.
If settlement without the court's involvement is not achieved, the claimant must issue their claim at court, thereby commencing court proceedings. Court proceedings can only be brought to an end in one of three ways:
- One party discontinues their claim/defence (this carries costs liability).
- The parties reach a legally binding agreement.
- The court makes a final order.
There is a court process which must be followed. This usually involves both parties preparing formal witness evidence, setting out their claim/defence, disclosing any relevant documents, having at least one preliminary hearing, and then having a final hearing.
The parties may engage in an FDR Hearing early in the court process. This is similar to mediation, but rather than a mediator being the facilitator, it is a judge, and the parties are required to attend the hearing so that agreement can be reached.
Proving a breach of trust
To prove a breach of trust, you have to have evidence. The court will only place so much weight on witness evidence. Therefore, documentation is crucial. You may not be entirely sure if a breach has occurred or the extent of the breach without documents being disclosed by the trustees.
They are legally required to disclose certain documents, depending on the type of trust, but if further documents are needed, an application to the court for a pre-action disclosure order may be required. However, we usually obtain the trustees' documents by agreement where possible.
Can you challenge a trust in England and Wales?
It is possible to make various claims concerning a trust, depending on your relationship to the trust.
If, for example, you are a trustee who finds working with a co-trustee particularly challenging, you could apply to the court for directions as to what you should do with the trust or for their removal if it seems unlikely you would be able to work together.
If a beneficiary is concerned about how trustees manage the trust, they could apply for their removal or, if a loss has been suffered due to actions the trustees have taken, a beneficiary can apply for them to have to reimburse the trust for the loss caused personally.
A third party who considers they may have a claim against the trust (for example, if they feel they should be included in a class of beneficiaries or they consider the trust owes them money) can make that claim against the trustees.
Why choose us as your trust dispute lawyers
We have a team of experienced lawyers who have dealt with various trust disputes; therefore, we are well-equipped to assist those in the unfortunate position of being engaged in a trust dispute. The team will listen to your concerns, whether you are a trustee, beneficiary, or third party, and advise you on the best options available in your circumstances.
If necessary, we can assist with investigating the merits of a claim and liaise on your behalf with the other parties and their legal advisors. We can assist in seeking to resolve without having to involve the court, and where necessary, we can act for you in any court proceedings that fall within the jurisdiction of the courts of England and Wales.
FAQs
It depends on the circumstances and the type of claim. Whilst the general principle of “loser pays the winner’s costs” applies, usually unless the trustees are deemed to have acted in appropriately they will recover their costs from the trust fund. The other parties may also recover their costs from the trust fund, if an agreement is reached confirming this, but they may be required to pay their own.
It is important to note that until such time as a court order is made, the starting point is that trustees are entitled to recover their costs from the trust fund, whereas other parties are not. As such, a non-trustee will need to be prepared to fund their own costs unless they are able to obtain funding from a third party. It is also important to bear in mind that if trustees do not have access to trust funds, they too will need to fund their own costs until such time as they can recover them from the trust. Also, trustees may, depending on the type of claim, need to be prepared to reimburse the trust in the event the court made an order that they were not entitled to some/all of their costs from the trust fund. But this usually only happens if a trustee has acted unreasonably in dealing with the claim.
Yes. There are many different reasons why someone may wish to dispute a trust. For example, they may consider a trustee is acting inappropriately, or that a decision they have made was inappropriate. There may be concerns as to the validity of a trust, or a third party may have a claim against a trust. Usually, the decision as to whether a trust can be disputed will come down to the evidence that can be obtained, and the seriousness of the situation.
Technically, no. But the sooner you act the better, as serious delay can result in a defendant raising a defence that you should be prevented from making your claim on the basis that it is unreasonable for you to do so such a long time from when the issue first arose. But such a defence would only usually succeed if you had waited several years before taking any action, despite being in a position to do so a lot sooner.
In theory any trust asset can be contested. It will depend on what the contention is and the evidence available as to the likely success of challenging the position. For example, if the claim is that a house does not form part of a trust because it belongs to someone else, this can be a legitimate claim.
Assuming you are the person alleging a breach of trust, the first step is to investigate the breach and, assuming there is evidence of the breach, write to the trustee who is in breach explaining the basis of your concerns and seeking a resolution. This could be their removal as trustee, or that they rectify the situation, depending on the circumstances. If they will not cooperate, you may need to apply to the court for a resolution. This could involve their removal as trustee, or it could be for a direction that they take a particular course of action to rectify the situation.
This is a difficult question to answer as there are so many variables. For example, if the breach is a result of action carried out by trustees over several years, it may take a considerable amount of time and therefore cost to investigate the extent of the breach.
Costs will also be impacted by the level of engagement between the parties. If everyone co-operates and a resolution is reached relatively amicably the costs will be lower. But if the matter proceeds to a contested court hearing, the costs would naturally be higher.
We have been able to resolve disputes that are dealt with amicably with clients incurring costs of a few thousand pounds. We have also had matters that have proceeded to a court hearing which have cost clients tens of thousands of pounds. There is also the liability for the costs of other parties which have to be taken into account in the event you are unsuccessful. They could be equal to or more than your own.
