Contentious Trusts Part 1: What makes a trust contentious?

What is a contentious trust?

A trust can be considered contentious if it faces any form of distress. This can include:

• Financial distress: The trust may have no money but still has liabilities, creating a challenging situation for trustees and beneficiaries.
• Emotional distress: Disputes among beneficiaries or between beneficiaries and trustees can lead to emotional turmoil, making it difficult to manage the trust effectively.
• Mismanagement: Trusts that have been poorly set up or managed by previous trustees can also become contentious, as beneficiaries may feel their interests are not being properly protected.

How to seek support for contentious trust issues

If you find yourself dealing with a contentious trust issue, it's crucial to seek support from professionals who understand the complexities of trust management. Whether the trust was set up incorrectly or has been mismanaged, expert guidance can help navigate the challenges and find a resolution.

• Dialogue and communication: Open and honest communication is key to resolving contentious trust issues. Engaging in dialogue early can prevent disputes from escalating.
• Mediation and arbitration: If initial conversations do not resolve the issue, mediation and arbitration can be effective tools for reaching a mutually agreeable solution.
• Court intervention: In some cases, court intervention may be necessary to clarify the terms of the trust or resolve disputes that cannot be settled through mediation or arbitration.

Which are some typically issues found in contentious trusts?

Family trusts are designed to protect and distribute wealth across generations, but they often become a breeding ground for disputes and legal challenges. These issues can arise from a variety of factors, including poor communication, ineffective trusteeship, and changing societal attitudes.

Disagreements among beneficiaries

One of the most common problems is disagreements among beneficiaries, whether they are from different generations or even siblings within the same generation. These disputes can be exacerbated by toxic family politics, where one sibling might feel entitled to more control or feel excluded by their parents. Such scenarios are often fuelled by an abundance of money and time, leading to complex and emotionally charged conflicts.

Ineffective trusteeship

Poor trusteeship can also contribute to these issues. Trustees who are indecisive or try to please everyone often end up pleasing no one, making the situation worse for future trustees. In some cases, trustees may not fully understand their role or the legal nuances of the trust structure, leading to ineffective decisions that can have long-term consequences.

Misunderstandings and poor communication

Misunderstandings about the trust structure are another significant problem. Beneficiaries may not fully grasp what the trust entails, leading to promises made to unconnected third parties that cannot be fulfilled. This can result in contentious situations where beneficiaries believe they have the authority to make decisions that are outside their control.

Legal and structural issues

Legal and structural issues can also complicate matters. For example, changes in regulations and definitions can lead to disputes over who is included as a beneficiary. This is particularly relevant with older trusts that have not kept pass with societal changes.

Court intervention

In some cases, trustees may need to seek court intervention to have decisions blessed, which can be contentious. This often comes down to the drafting of the deed and the need for clarity in the trust's terms. Court intervention can help resolve disputes but can also add complexity and cost to the process.

Changing attitudes and wealth preservation

Changing societal attitudes can also lead to contentious issues. What was acceptable 20 years ago may not be acceptable today, leading to disagreements between generations. Additionally, the need for beneficiaries to sign prenuptial agreements to avoid exclusion from the trust can be a source of contention, as some may argue that this is an inappropriate restriction on the trustee's abilities.

Challenges to the trust structure

Challenges to the trust structure by individuals seeking to gain control of the assets can also arise. This can happen in divorce cases or when creditors seek to recover debts. Offshore jurisdictions have introduced legislation to protect trusts from such attacks, but these challenges can still be a significant issue.

How can Ocorian help with contentious trusts? 

Navigating the complexities of family trusts requires a deep understanding of the legal framework, effective communication, and a proactive approach to resolving disputes. Trustees and beneficiaries must work together to ensure that the trust's objectives are met while minimising conflict and legal challenges. By addressing these issues head-on, families can preserve their wealth and maintain harmony across generations. For more information on how Ocorian can support, reach out to the team.