Conflicts with trust’s governing documents: Overview, definition, and example
What are conflicts with trust’s governing documents?
Conflicts with a trust’s governing documents refer to situations where actions, decisions, or interpretations of the trust's provisions are in disagreement with the instructions or terms outlined in the trust agreement or trust deed. The governing documents of a trust include the trust agreement (or deed), which specifies the rules, duties, and rights of the trustee, beneficiaries, and other parties involved in managing or benefiting from the trust. When conflicts arise, they may involve disagreements over the interpretation of the trust’s terms, disagreements between beneficiaries and trustees, or actions that violate the trust’s stipulated terms.
These conflicts can cause legal disputes, undermine the intent of the trust, and complicate the management of the trust assets. Resolving these conflicts typically involves reviewing the governing documents, seeking clarification, or in some cases, judicial intervention to ensure the trust is administered correctly.
Why are conflicts with trust’s governing documents important?
Conflicts with a trust’s governing documents are important because they can lead to delays, financial losses, or legal issues that affect the trust’s performance and the interests of its beneficiaries. These conflicts may create tension between the trustee and beneficiaries, or even result in the trustee being removed if they are found to be in violation of the trust’s terms. Furthermore, unresolved conflicts can lead to costly litigation, undermine the trust's goals, and may require a court to step in to interpret or modify the trust documents.
For businesses, families, or individuals involved in managing a trust, it is crucial to resolve conflicts with the governing documents efficiently to ensure the trust operates smoothly and in accordance with the grantor's wishes.
Understanding conflicts with trust’s governing documents through an example
Imagine a family trust where the governing document specifies that the trustee must distribute annual income from the trust to the beneficiaries equally. However, the trustee begins making uneven distributions, favoring one beneficiary over the others based on personal preferences or other reasons.
In this case, the trustee’s actions conflict with the trust’s governing documents, which explicitly state the conditions for equal distribution of income. This conflict could lead to a dispute among the beneficiaries, and the trustee may be required to justify their actions or potentially face legal action for breach of fiduciary duty.
Another example could involve a situation where the governing documents state that the trust is to remain intact for a specific number of years to benefit the children of the grantor. However, the trustee, acting prematurely, distributes a significant portion of the trust's assets to the beneficiaries before the specified time, violating the trust’s terms. This is another example of a conflict with the governing documents.
Example of a conflicts with trust’s governing documents clause
Here’s how a clause related to conflicts with trust’s governing documents might appear in a trust agreement:
“In the event of a conflict between the actions of the Trustee and the provisions outlined in this Trust Agreement, the Trustee shall seek legal counsel to resolve the issue. If the conflict cannot be resolved informally, the matter may be brought before a court for interpretation and resolution, in order to ensure that the terms of the Trust are adhered to and that the interests of the beneficiaries are protected.”
Conclusion
Conflicts with a trust’s governing documents occur when actions, interpretations, or decisions made by the trustee or other parties involved contradict the terms laid out in the trust agreement. These conflicts can lead to legal disputes, damage the trust's purpose, and create tension among stakeholders.
For trustees, beneficiaries, and those managing trusts, understanding and resolving conflicts promptly is crucial for ensuring the trust is administered as intended and in accordance with the governing documents. Addressing these conflicts early, seeking legal advice, and following proper legal procedures helps maintain the integrity and function of the trust.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.