Trust Establishment and Litigation
The trust is one of the most popular tools in estate planning. Generally speaking, a trustor (also sometimes known as a settlor or grantor) establishes a trust for the benefit of one or more beneficiaries (the parties benefitted by the trust). A trustee (who controls the trust property) then administers the trust for the benefit of those beneficiaries. Individuals may establish trusts for a variety of reasons, and trusts will permit the trustee to control the flow of trust property to the beneficiaries, subject to any parameters established in the trust document. In certain circumstances, that control can be more beneficial than utilizing a will to outright grant property to a third party. For example, individuals may: use trusts to take advantage of certain tax benefits, establish special needs trusts to care for beneficiaries with limited capacity, create revocable living trusts that take effect upon death, or create charitable trusts through which the trustee can control and oversee the release of funds to various charities.
A trust can be a powerful estate planning tool. Typically, trusts take the form of express trusts, which are established by the specific terms written in the document at issue. Sometimes, however, even express trusts can be confusing and lead to litigation over their terms. Moreover, if the creation of an express trust involved actual or constructive fraud, a court may rely upon parol evidence (evidence outside the written document itself) to establish its proper terms. Unfortunately, even diligently writing down express terms might not avoid conflict if those terms are not articulated clearly enough.
Sometimes, certain factual circumstances may even require a court to establish a trust where an express trust has not been created. Courts may in equity elect to protect the rights of parties who they believe have been wronged. This is powerful equitable relief that might be available to certain people in litigation. Two of the most common equitable trusts are resulting trusts and constructive trusts.
A resulting trust may arise where one party buys property, but the deed to the property vests title in a different party who did not purchase the property. A resulting trust occurs when the court rules that the purchasing party has equitable title in the property despite someone else holding legal title. Typically, the court will presume that the title-holder holds title properly and validly. To impose a resulting trust, a court must see contrary intent, and the party seeking to establish a resulting trust must do so with clear, cogent, and convincing evidence. Although the petitioning party may rely upon parol evidence in making the claim, the petitioner must meet this high burden to establish that title should have been held by the purchaser rather than the legal title-holder.
A constructive trust, on the other hand, occurs when a party acquires property through some form of misconduct, such as fraud, misrepresentation, bad faith, duress, undue influence, or overreaching, and title should be held in a different party to prevent the title-holder from being unjustly enriched. As with a resulting trust, a court sitting in equity will impose a constructive trust where there is clear, cogent, and convincing evidence supporting the imposition, and once again, parol evidence is admissible. The primary reason for imposing a constructive trust is to prevent unjust enrichment. As a result, the conduct at issue need not arise to the level of fraud or undue influence so long as the title-holder will be unjustly enriched if permitted to retain the property. Nonetheless, this is a very fact specific inquiry requiring a court to understand the background of the conduct of the parties. A court may establish constructive trust independent of any actual or presumed intention of the parties. In essence, a constructive trust is equitable relief used for the purpose of establishing justice between the parties, and it is a powerful equitable tool in the arsenal of the courts.
While trusts remain an incredibly useful and adaptable tool in estate planning, they also present a minefield for litigation concerning the relationships between various parties. Whether you need assistance with the establishment of a trust, or with litigation pertaining to express or equitable trusts, the attorneys at Beresford Booth are available to counsel you. Please feel free to contact Beresford Booth at info@beresfordlaw.com or by phone (425) 776-4100.