There’s a common misconception that trusts cannot be contested. However, this is simply not true. Similar to a will, a trust can be disputed.
Of course, nothing should take the place of the advice of an experienced estate planning attorney. Here you will find answers to some commonly asked questions about trusts, the different types of trusts available, and the grounds upon which one may be contested.
What is a trust?
A trust is a legal document that holds the right to money or property on behalf of beneficiary. A trust can be formed during a person’s lifetime and survive their death, or it can be created through a will and formed after death.
While wills and trusts often work together as part of a comprehensive estate plan, they are separate legal documents. Depending on the type of trust, it may supersede a will. A living trust, for example, typically overrules a will. However, in most cases a will supplants a testamentary trust.
The person who creates a trust is called a trustor, grantor or settlor, while the person or entity responsible for the trust is referred to as the trustee. Anyone who will receive assets from the trust is known as the beneficiary.
Once a trust is created and the assets are placed in the trust, they belong to the trust, not to the trustee. The trustee is considered a fiduciary, and therefore has a responsibility to act in the best interest of the beneficiary or beneficiaries. They are bound by the rules and instructions of the trust contract.
What are some commonly used trusts in Tennessee?
Trusts fall into two categories: revocable and irrevocable.
Also known as living trusts or revocable living trusts, revocable trusts are created while the trustor is still alive. The trustor transfers the title of property to the trust and serves as the initial trustee until a successor trustee takes over after the trustor’s death.
These trusts can be modified or even revoked entirely during the trustor’s lifetime. As such, they can be a helpful asset management tool for trustors. A revocable living trust can also be useful for families with children from prior marriages, as it can protect certain assets for those children. However, a living trust does not protect the trust’s assets from creditors while the trustor is alive.
A revocable trust can be helpful in avoiding probate, at least for assets that are transferred to the trust during the trustor’s lifetime. Because these assets are owned by the trust when the trustor dies, the assets are not subject to probate.
Upon the death of the trustor, a revocable trust becomes an irrevocable trust.
Irrevocable trusts differ from revocable trusts in that they cannot be altered in any way or revoked after being created. Once an asset is transferred to an irrevocable trust, it cannot be taken out of the trust – even by the trustor.
There are several different types of irrevocable trusts, each one designed for a specific purpose. Three common examples include:
- Asset protection trusts – Designed to protect a person’s assets from future creditors’ claims, asset protection trusts do just that. They are often established in countries other than the United States, and are typically structured so that they are irrevocable for a set number of years and the trustor is not listed as a current beneficiary. When the trust is terminated, the undistributed assets are returned to the trustor if there is no current risk of creditor attack.
- Special needs trusts – In a special needs trust, the beneficiary is typically a disabled person who receives or is eligible to receive benefits from the government. The special needs trust ensures that the beneficiary can receive the benefits from the trust without interfering with their government benefits. The benefits from the special needs trust supplement the beneficiary’s income and help provide for their needs. This is permitted under Social Security regulations so long as the beneficiary does not control the trust, including altering the amount or frequency of trust distributions or revoking the trust.
Special needs trusts are often used by parents to provide for a disabled child. A special needs trust can be established as part of the parents’ estate plan. This gives parents peace of mind knowing that their disabled child will be financially secure after they are gone.
- Charitable trusts – Established as part of an estate plan, charitable trusts can name a specific charity or charities, or even the public in general, as beneficiary. They have the added – and perhaps real value for the trustor – of helping to lower or avoid estate and gift taxes.
What are the grounds to contest a trust?
The main reason to contest a trust is an objection to the validity of the trust. Perhaps the trust was established or, in the case of a revocable trust, altered immediately before a loved one died. The trustor may not have been of sound mind and capable of making the decision to create or change the trust.
The burden of proof rests with the person who files the trust contest lawsuit objecting to the validity of the trust. This is just one reason why selecting a knowledgeable attorney with solid experience handling and disputing trusts is so important.
Another reason is timing. In Tennessee, there is a statute of limitations which sets the timeframe for when a person can contest a trust. An experienced wills and trusts lawyer can ensure your trust contest lawsuit is filed in a timely manner.
The decision to contest a trust is rarely easy. Emotions are already running high after the loss of a loved one, and you may be worried about the potential damage a dispute could cause to your relationships with your surviving loved ones. These are valid concerns. The experienced trust contest attorneys at Wagner & Wagner Attorneys at Law can help.
At Wagner and Wagner Attorneys at Law, we are skilled in all aspects of estate planning and probate law. We are as effective at creating comprehensive estate plans that protect you, your loved ones, and your financial and business interests as we are at contesting trusts and wills when necessary. Based in Chattanooga, we also represent clients in Cleveland and the surrounding counties in TN. To schedule a free consultation, please call us at 423-756-7923 or complete our contact form.
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