A Guide to Handling Trust Disputes

What is a trust dispute?

A trust dispute is any problem or issue relating to the administration or interpretation of a trust. There may be a disagreement between multiple trustees, or a disagreement between the trustee(s) and beneficiaries. 

It is not uncommon for trustees to have differing views on how a trust should be administered. Beneficiaries may suspect the trustees are mishandling trust assets or not complying with their obligations. Our team has handled many trust disputes and is here to help you and your loved ones. 

What is a friendly trust dispute?

A friendly trust dispute would be where the trustees are uncertain about the terms of a trust, and seek clarity over any ambiguity amicably to benefit the whole trust in their position as trustees.  There is no dispute with the beneficiaries, and an application to the court will be with the consent/agreement of all the interested parties. This is different to a “hostile” dispute where the various parties take different positions  A common scenario would be where a beneficiary is bringing a breach of trust claim against a trustee<

I want to dispute a trust. What’s the process?

Step One: Gather evidence

If you are unhappy about the actions of a trustee and suspect it may lead to a dispute, it’s a good idea to start collecting evidence, even before you seek the help of a solicitor. Evidence can be any of the following, but not limited to: 

• The ‘Trust Instrument’. This can be: 

• Trust deed ; 

A Will that contains a trust; 

• Documents created by the person who set up the trust, e.g. a letter of wishes  

• Emails, letters, and other written correspondence between trustees or from trustees regarding a potential breach; 

• Copy of any trust accounts – these should be provided annually by trustees showing what assets are in the trust, their value, whether any of the trust assets have been distributed to any of the beneficiaries and any costs that have been incurred during the  period in administering the trust 

• Other correspondence with third parties like accountants, valuers, banks, and HMRC 

• Documents that might show there has been mishandling of assets, such as bank statements, and land registry documents. 

Step Two: Seek the help of trust dispute solicitors

Why do I need legal advice to help with a trust dispute?

It can help to instruct the advice of a solicitor in more ways than one. A solicitor’s involvement could avoid any further confusion and prevent further issues from arising. A solicitor would aim to get things resolved in a fair and timely manner depending on your complaint. It may be that the dispute has come about as a result of a breakdown in communication between the trustees and beneficiaries and a few letters from a solicitor may resolve the issue.   

If there is a complaint about how a trustee is behaving and a concern that they may have committed a breach of trust, a solicitor will be able to assess whether or not that is a valid claim looking at the legal position and based on the evidence you have at that point.  A solicitor will help you explore all possible avenues to a resolution and work with you to see what would be the most appropriate approach whilst being mindful of things like relationships of the trustees and beneficiaries, timing, and costs 

Solicitors can also help with obtaining important documents under circumstances of a breach, such as court declarations, and can assist in the full trust dispute claims process if court proceedings are necessary. 

Step Three: Consider alternative dispute resolution

Many disputes may be resolved without going to court, which means it could take less time and is more cost-effective. Indeed, the court actively encourages parties to look to settle their differences before issuing proceedings, and parties can be penalised if they don’t attempt to settle the matter. Settlement can take a variety of forms including without prejudice (off the record) discussions between the parties or just between lawyers.  Another way is to out an offer of settlement in writing. 

A popular and successful way of settling the dispute is by having a mediation. This is a process whereby an independent third party is appointed to mediate the dispute between the parties during a meeting – often a day. Each party attends the mediation and remains in their own room. The mediator goes between the two parties looking to explore the issues at stake and narrow the gap between the parties until a settlement is reached. The process is confidential and nothing the parties discuss at mediation can be disclosed to the court or third parties. It means that the dispute can be resolved quickly and it becomes legally binding once the parties sign up to a formal settlement agreement. Mediation can often help trustees and beneficiaries resolve disputes quickly in a more amicable setting and allow the parties to come up with a way of sorting out the dispute which the court doesn’t have the power to do if the parties went to court. Mediation is something we’re able to guide you through this course of action where appropriate. 

Step Four: File the claim in court

If mediation or other forms of alternative dispute resolution fails to resolve your trust dispute, you can file your claim in court. Strict rules set out what your claim must contain, including full details of the trust, what you allege has gone wrong, and what remedy you are seeking, e.g., removal of the trustee or a declaration that there has been a breach of trust and the trustee needs to make good any losses e.g. paying back money into the trust.  You’ll need evidence for this process and we can help you gather it and present it to the court. 

The court process can be daunting but we are there to help guide you through the process, including navigating all the court rules and deadlines.  

Breaches of trusts

A breach of trust is simply where a trustee has failed to carry out their obligations as required in the trust document or by law to a reasonable standard. This can be something they did or something they failed to do. A lot of the time, it’s because the Trustee has acted in their own best interests instead of those of the trust, or they don’t fully understand what they were supposed to do. Examples of this could include: 

• Failing to distribute assets – a trustee may be required by the trust to pay income to a beneficiary but decide not to because they have fallen out with the beneficiary or think they do not deserve it; 

• Incorrect distribution – a trustee must only distribute trust assets to beneficiaries of the trust; otherwise, they will be in breach of the trust. A trustee might have given trust assets to the wrong beneficiary, or the trustee gave the assets to the correct beneficiary but for the incorrect assets/amount. A trustee might even try to keep estate assets that were not intended for them; 

• Breach of powers – Trustees powers come from the law and the trust document but these can also be limited or restricted by the person who created the trust. A Will trust can specifically direct a trustee to consult with the beneficiaries before they can use their powers to make any payments.  

• Profiting from the trust – Unless the trust document says so, the trustees can’t profit from the trust. An example of profiting from the trust would be to sell trust assets to themselves at a much lower price than they are worth.  

• Causing loss to the trust – Trustees are responsible for looking after the trust assets and sometimes that can take the form of a property. The trustees would therefore need to make sure that it is properly insured and any leaks and breaks are dealt with to avoid further damage and loss to the trust. 
• Misappropriating trust assets – this is where the trustee has taken the money for themselves personally when they are not a beneficiary of the trust

You can read more about breaches of trusts here >> 

Claiming money from a trust

Trustees have the legal right to control all money, shares and property (assets) that are left in a trust and often make the decision as to how those assets are distributed between a class of beneficiaries.   While you may be named as a  beneficiary to receive some of the assets, it doesn’t mean you are entitled to anything outright.  It is the trustees who make the decisions about trust assets before they are distributed. 

As a beneficiary, you can request the trustees to give you what you are entitled to. However, there are some trusts that mean the beneficiaries don’t have an outright entitlement to trust assets. This is called a discretionary trust and there is a class of benefeciairies  which the trustees need to consider, but no one is entitled to the trust assets.   In those trusts, you can ask the trustees to consider your request but it will be up to them whether your request is granted – they have the discretion 

A dispute may arise if you believe you are owed money from a trust and the trustees don’t agree and refuse to give you that money. Similarly, there may be a dispute if a trustee has spent money or given away assets that were meant to be held for you.  

Find out more about claiming money from a trust >> 

Can a trustee be removed?

Yes, if there are enough trustees left or a replacement trustee appointed to continue administering the trust.  

Breaches of trust can be grounds for other trustees and/or beneficiaries to seek their removal. A trustee’ who is extremely argumentative, difficult, purposely combative or even absent may be removed by the court if they consider it is in the best interests of the trust overall.  Find out more about the removal of trustees >> 

What happens if a trustee becomes incapacitated?

Sometimes the trust document itself will say what happens if a trustee does not have capacity.  

If a trustee becomes incapacitated, and is not able to act, the other trustees have the power to appoint a new trustee to replace them. 

If the incapacitated trustee does have an interest in the trust personally, i.e. as a beneficiary, it is usually the decision of the Court of Protection to advise on next steps, involving all other trustees. 

Who pays the legal fees in a trust dispute?

A trustee should not be out pf pocket for taking on the role as a trustee, as otherwise, no one would act, especially lay trustees who are not being paid for the position. 

Therefore, trustees have an indemnity from the trust fund for their properly incurred legal expenses, i.e. they are entitled to recover nearly all their costs from the trust fund.  However, this is providing they have acted reasonably and not in breach of the trust. If they have acted in breach of the trust, it may be that the court will not allow a trustee to recover their costs from the trust fund and would need to pay for them personally.   

We recommend seeking legal advice as early into a dispute as possible to minimise financial risk and understand how the costs and fees may look for your individual claim.

Trust disputes: myths and facts

Myth 1: You can’t dispute a trust administration if you’re a trustee 

FALSE – It is normally more common for beneficiaries to dispute a trust, but trustees can bring an action too if they believe other trustees are acting in breach of it and is preventing them from being able to properly administer the trust, and it is causing harm or loss to the trust  

There are many other people who may wish to dispute a trust, aside from trustees or beneficiaries – including creditors or divorced spouses.  

Myth 2: You can remove a trustee for being absent 

TRUE – Being absent for long periods does count as grounds for trustee removal. Being a trustee carries legal obligations and duties, and if a trustee is not acting in this role, then there is no reason why other trustees, or anyone else with an interest in the trust, can’t seek that trustee’s removal. A court will want to see evidence such as: 

• Proof of beneficiaries reaching out to trustees and being ignored; 

• Further attempts to reach trustees using different forms of contact; and/or 

• Confirmation of the trustees’ circumstances – whether they are in hospital, incapacitated, or simply at home and ignoring beneficiaries because they don’t want to deal with the trust.  

Myth 3: If a trustee dies, their role passes to the Crown 

FALSE – If a trustee dies, check the Trust document, as there may be enough continuing trustees that the trustee doesn’t need to be replaced.  Alternatively, it may direct whether someone has the power to appoint a replacement trustee.  This power is sometimes reserved to the person who set up the trust (known as the settlor).  If the document is silent, it is then the decision of the remaining trustees (if any remain) to appoint a replacement trustee to continue to work alongside them. If no trustees remain, it will be up to the deceased trustee’s personal representatives to elect new trustees.  

Get legal advice on a trust dispute today

We’ve supported many people in their trust disputes, have helped claim back money and assets owed, and helped individuals reach resolution often without having to involve the courts. This saves costs and also time and stress.

Our specialist trust dispute team is led by partner Andrew Wilkinson, who specialises in contentious trusts and probate – namely will disputes, trust disputes, financial provision claims under the Inheritance Act 1975, and claims relating to powers of attorney and contested Court of Protection applications. 

Andrew works closely with partner Debra Burton TEP, who specialises in trust disputes. e as, claims for removal of trustees and executors, and claims for declarations of trusts in assets, such as land.