6 Common Issues with Managing a Trust

Purchase of care home

Trusts are an invaluable part of any comprehensive estate planning strategy. These versatile legal agreements have a variety of uses, from protecting wealth and limiting tax liabilities, to avoiding probate and safeguarding assets for future generations. 

Given that the process of managing a trust can be complicated, it’s common for disputes to arise over their administration. This is why seeking specialist legal advice is crucial, as your solicitors will be able to offer support all the way from creating the agreement through to final administration. 

Having the right solicitor in your corner can also help you navigate some of the most common problems often associated with administering a trust, even ensuring that your interests are protected should a dispute arise. With this in mind, let’s explore six potential pitfalls that could arise when managing these important agreements.

How Trust Administration Works

Once assets are placed into a trust, they will come under the control of your chosen trustees. These individuals are tasked with ensuring your wishes are taken care of, while also making important decisions in the best interests of beneficiaries. 

There are several duties and obligations to fulfil when managing a trust, which include:

  • Administering a trust according to the Trust Deed
  • Processing payments to beneficiaries
  • Keeping detailed records 
  • Investing or managing assets
  • Filing required tax returns
  • Complying with relevant laws surrounding trust administration

Because there’s so much to consider, trustees will often consult with a solicitor to help them ensure everything has been taken care of. It’s also common for legal representatives to act as trustees themselves to ease some of the burden.

Common Problems with Administering a Trust

There are several potential issues when it comes to managing a trust. While many can boil down to disagreements between trustees and beneficiaries, there are others that are the result of poor planning and organisation on the part of the individual who set up the trust in the first place — known as the settlor. 

Here are six common problems associated with trust administration: 

  1. Disputes Over Authority

Situations may arise where beneficiaries dispute that the trustees have the proper authority to act on behalf of the trust. These usually occur when the original trustee dies or becomes incapacitated — which either leads to a successor trustee taking over, or the realisation that a successor was never appointed in the first place. 

Beneficiaries may also want more input with regards to trust administration, such as how money should be invested. Trustees could then try to resist additional involvement and instead continue to carry out their duties according to what they believe to be in the best interests of the settlor.

In most cases where a dispute over authority arises, the issue can be solved by careful examination of the trust itself. This could prove to be difficult, however, if the wording is quite vague or there are errors within the document. 

  1. Allegations of Mismanagement

Another common problem with managing a trust occurs when a beneficiary believes the trustees are not acting in the best interests of the settlor, or are being negligent in their duties. Examples of this include failing to invest assets safely, not selling them in a timely manner, or a belief that the trustees are behaving in a fraudulent or dishonest manner. It can even boil down to a simple disagreement over how the trustees’ duties are being carried out.

If there is more than one trustee, they are all obligated to reach a consensus amongst themselves over how the trust will be administered. Should a trustee either fail to engage with the process or decide to act unilaterally, this could cause a dispute. Similarly, if one of the trustees believes another is not living up to their responsibilities, they have a duty to report it. If they don’t, they also risk being challenged and removed from their role.

Seeking legal advice at the earliest opportunity is the best option for resolving allegations of mismanagement. Your solicitor will be able to provide you with an independent opinion on the validity of your position, and present a tailored solution designed to protect your interests. 

  1. Failing to Transfer Assets

Quite often, a settlor will draw up a trust and then fail to take the final step to transfer their assets into it. This leaves the beneficiaries believing that they have the authority to manage these assets, only to find out at a later date that this isn’t the case. 

Should this occur, the settlor’s assets cannot be administered according to the trust and instead could be subject to probate — resulting in a long, drawn-out process that may see the funds going to other parties instead of the intended beneficiaries — such as creditors, other family members etc. As a result, it’s imperative that trustees perform a detailed check to ensure everything is accounted for. 

A specialist solicitor can assist with this task, and will usually confirm with the settlor that all assets have been included in the trust as soon as it’s been set up. In situations where the error has only been uncovered when the trust is due to be administered, the best course of action to resolve the problem may be to go through the courts.

  1. Issues with Beneficiaries

For a trust to be valid, it needs to have at least one beneficiary listed. If it doesn’t, then the settlor’s assets won’t be distributed according to their wishes. Instead, they may need to go through the probate process. 

Trustees may also experience difficulties if beneficiaries die or become incapacitated after the trust was created. A well set-out trust will make provisions for such an eventuality, and outline what should happen to assets if the original beneficiaries are unable to claim them.

Another potential problem with beneficiaries is if a trust fails to protect them from divorce proceedings or creditors. When setting up the agreement, settlors can stipulate who they do not want to benefit from their assets and ensure that everything is divided exactly according to their wishes. If this doesn’t happen, they run the risk of assets being syphoned off elsewhere. 

  1. Use of Ambiguous Language

Managing a trust can be difficult at the best of times, even when the document clearly lays out the settlor’s wishes. If ambiguous language is used, or things are left to the trustees’ discretion, disputes could easily arise. Working with a specialist solicitor can ensure your wishes will be followed and nothing will be left to chance or interpretation. 

  1. No Regular Reviews

The regular review of a trust is something that both settlors and trustees should carry out. Failure to do this can result in certain terms or provisions becoming obsolete and outdated — something that court action may be required to resolve. 
A trust should be reviewed at least once per year, with trustees meeting to discuss strategy and check that everything remains fit-for-purpose. Settlors should also ensure that the trust is up-to-date and accounts for major life changes — such marriage and divorce, or the birth of children/grandchildren.

Wills and POA Retrieval - laptop image, no transparency

Trust & Estate Management Advice Built Around You

There’s no one-size-fits-all solution when it comes to managing a trust. People setting up the agreement will likely have completely different goals than those selected to administer them. It’s therefore essential to seek legal advice that’s tailored towards your unique requirements. 

The Private Client team at Thursfields has a great deal of experience with all aspects of trust administration, from planning and creation, right the way through to dispute resolution. We take the time to thoroughly understand your circumstances and goals, before recommending a bespoke solution designed to deliver your desired results. 

If you’re a settlor, we’ll ensure that your document is clear, thorough, and is an accurate reflection of your wishes. We’ll also outline any pitfalls that may arise and how they can be overcome. For trustees, our team will provide targeted advice to ensure you fulfil all of your obligations. We can even help if you believe that you’re not receiving the inheritance you believe you’re entitled to.

For more information about our services and what they can do for you, contact our team today.

Get In Touch

With Us

Need expert legal advice? Our solicitors are here to help. Get in touch today.

Sign Up To Our