According to the National Association of Securities Dealers Automated Quotations (NASDAQ), when it comes to inheritances, almost 70 percent are lost by the second generation, and up to 90 percent are gone by the third generation.
Additionally, a 2012 study published by Harvard Business Review states that up to 70 percent of family-owned businesses fail before they reach the second generation, particularly in high-net-worth families, mainly due to absence of trust. This often results in family feuds, poor communication, and oversized egos.
Indeed, when wealth or a family trust is on the table, conflict is to be expected.
In this article, we will discuss the unique challenges that commonly arise in trust litigation involving multiple generations of beneficiaries, as well as provide strategies for resolution.
Family Feud: Common Trust Dispute Challenges in Families
Concerns in Capacity
When a party questions the trust maker’s capacity to form or execute a simple trust, it almost always leads to conflict. In the state of California, an individual must have “testamentary capacity” in order to create a trust.
Under the California Probate Code §6100, individuals of legal age who have a sound mind (meaning they understand the actions they take), know all their properties, and know their relationship to anyone impacted by the trust, are permitted to make a will.
When another individual can prove that the testator does not have testamentary capacity, the trust will be dissolved.
Disinheritance is another common source of trust disputes.
Naturally, a child or a family member who is excluded from a trust may feel surprised, confused, and angry. They may be concerned that another party influenced the testator into the decision, so conflict arises.
Fiduciary Breach By Trustee
A trustee is an individual assigned to manage the assets of a trust, benefiting the beneficiaries. The trustee should only handle assets in line with the terms of the trust, and failure to carry out their responsibilities is considered a breach of fiduciary duty.
This is often a source of conflict as well – and breaches of fiduciary duty, which may include unpaid taxes, bad investments, and use of trust money for personal use, are unfortunately common.
Family Accord: Strategies for Resolution
Establish Clear Communication
Any changes to the trust, big or small, should be communicated to all beneficiaries with complete clarity and transparency. Sending a summary form or a copy of the executed governing documents to affected individuals is standard practice.
Regular family meetings that touch on trust updates will also help to address concerns and prevent conflict.
Consider Outside Dispute Resolution Options
Should a big conflict arise that cannot be resolved with open communication, families can utilize the services of a dispute resolution consultant or opt for pre-litigation resolution proceedings in the governing documents, which may involve mediation or arbitration.
These alternative dispute-resolution methods help ensure that all venues for resolution are exhausted before proceeding to litigation.
Bring in the Experts
If the dispute still isn’t resolved and each party decides to proceed to litigation, the most important step is to hire a competent trust litigation lawyer. Fiduciaries and beneficiaries would typically contact their corporate lawyer or the attorney who drafted the trust documents as an impulse.
Remember that trust litigation is a specialty, so it’s best to bring in an expert who specifically knows every in and out of litigation.
Conflict and trust disputes are unfortunately very common, and even more so in multi-generational families. However, all conflicts have a resolution – more often than not, it’s best to involve third parties to assist in resolving the problem.