Conflict between a duly appointed trustee and the beneficiaries of a trust is a common occurrence. Distribution of trust funds, trust investment vehicles, beneficiary financial problems, and family conflict happen frequently in addition to personality conflicts between the trustee and the beneficiaries. When conflict occurs, all parties must look first to the terms of the trust agreement to resolve the conflict.
The first source for resolving trustee and beneficiary conflict is always the trust agreement. If the trust terms are clear then the conflict solves easily. For example, if a beneficiary requests funds to pay for a spouse’s medical bills and the spouse is not entitled to funds under the trust terms, then there is no conflict as the funds disbursement cannot occur. Beneficiaries often ask for trust funds due to overspending and living beyond their financial means and the trustee will attempt to place the beneficiary on a budget. Beneficiaries tend to see this as a conflict, but if the trustee is acting in accordance with the trust terms, no conflict exists.
If the trust agreement is not clear regarding the matter causing the conflict between the beneficiary and trustee, the next step is to review the state statutes that govern the trust. For example, trusts that own timber will receive income from timber cutting and many trusts do not specifically state how allocation of timber proceeds occurs between the principal and income of the trust. Since most trust beneficiaries receive net income from the trust, how these funds allocate could cause a conflict. In this case, state law would prevail as the trust code for most states contains rules on timber allocation.
Conflicts not resolved by the trust agreement or state statutes must be handled in court by a judge. The trust code in all states allows that trustee and beneficiary conflicts have the right to go to the court that governs the trust for resolution. The trustee and beneficiaries will each retain separate legal counsel and petition the court to resolve the conflict. Once the judge has made his decision on the conflict and a final court order is issued, the court order becomes a permanent part of the trust agreement.
Breach of Trust
The initial steps to resolve a trustee and beneficiary conflict will not occur if the trustee has breached his duty to the trust. For example, incidences of theft, mismanagement and violating the trust terms are different issues only resolved by court action. In these instances, the beneficiaries hire legal counsel to petition the court to have the trustee removed and make restitution if appropriate.
Mary Frazier began writing in 2011 for various websites and has over 20 years of experience as a bank vice president and senior trust officer. Frazier is a Certified Trust and Financial Advisor, holds a Bachelor of Arts in economics from the University of North Florida and holds a Master of Science in finance from the College for Financial Planning.