A trust is a legal document that “holds” property to be used or administered as provided in the terms and conditions of the trust. In terms of estate planning, a trust is a commonly used tool that can streamline how an estate is distributed by avoiding the time and expense of probate court, and can avoid or defer estate taxes to be paid by the estate. Trusts can range from simple to very complex, depending on the needs of the “trustor” or “settlor,” which is the term to describe the person or persons that create the trust and place their property into the trust. Trusts vary greatly depending on their purpose.
A “trustee,” which is typically also the trustor at its beginning, is the person who administers the trust property, which is called the “corpus.” All trustees have a fiduciary duty to the trust and its beneficiaries.
There are two general categories for trusts, revocable and irrevocable. A revocable trust can be terminated by the trustors at any time they desire. This means the trust is ended and its property returns to the trustor to be used as the trustor sees fit.
An irrevocable trust cannot be terminated, except when it is finished distributing its property, or by court order. When a settlor creates a trust, they are creating a separate legal entity from themselves, particularly once the trust becomes irrevocable. The trust may pay taxes on its income, has a tax identification number, and may file tax returns, issue 1099s and other tax reporting documentation.
Every trust has one or more beneficiaries, which are the persons or things that will benefit from the income and property of the trust. In estate planning trusts, it is common that the trustors will also be beneficiaries while they remain living. When the trustors pass, the terms of the trust dictate how the remaining property and/or income contained in the trust will be used. In most cases, the residual property and income is distributed to the beneficiaries according to the terms, and then the trust is dissolved. However, some trusts will pay amounts to beneficiaries for years, and in some cases, for the lifetime of one or more beneficiaries.
It is not uncommon that individuals who are named as beneficiaries of a trust have a dispute with some aspect of the trust, including whether the trustor(s) had the legal capacity to create the trust, and how the trust distributes its property. It is also not uncommon that people have disputes because they were not named as a beneficiary in the trust, assuming they know they were left out of the trust, which is not always known because until a trust becomes irrevocable, its beneficiaries have no right to see the trust document.
Trust Disputes Usually Arise Over...
Trust disputes usually arise over the administration, interpretation, and/or validity of the trust document. A trust dispute can only be resolved through a lawsuit, but not everyone can bring a dispute of a trust to court. Disputes typically occur between beneficiaries and the trustee, and may involve allegations of negligence, mismanagement, conflicts of interest, or ambiguities within the trust document. Only individuals with legal standing can bring a trust dispute. Those people are its beneficiaries, the trustee, successor trustees, omitted heirs and disinherited family members, some creditors and third parties, and the trustor themselves.
The Process for Contesting a Trust in Oregon
Oregon does not have a probate-style filing for trusts the way it does for estates moving through probate court. Instead, a trust dispute is initiated like any other civil case, by filing a petition or complaint in circuit court, typically in the county where the trust is administered or where the trustee resides. The Oregon Uniform Trust Code, codified at ORS Chapter 130, governs trust administration and provides the framework courts use to resolve disputes over a trust’s validity, interpretation, or administration.
Grounds for a Trust Contest
A person with standing may challenge a trust on several grounds, including:
- Lack of capacity – the trustor did not have the mental capacity required to create or amend the trust at the time it was executed;
- Undue influence – the trustor’s decisions were the product of coercion or manipulation by another person, rather than the trustor’s own free will;
- Fraud or forgery – the trust document, or an amendment to it, was procured through deception or the trustor’s signature was forged;
- Improper execution – the trust was not signed, witnessed, or notarized in accordance with the formalities required for a valid trust instrument;
- Breach of fiduciary duty – a trustee mismanaged trust assets, self-dealt, favored one beneficiary over another, or failed to account for trust property; and
- Ambiguity or mistake – the terms of the trust are unclear, contradictory, or do not reflect the trustor’s actual intent due to a drafting error.
Statute of Limitations
Oregon law imposes deadlines on when a trust contest can be filed, and these deadlines can be surprisingly short. Under ORS 130.045, a beneficiary who receives a trustee’s notice regarding the existence of the trust generally has 120 days from the date the notice is sent to challenge the trust’s validity, or that right may be permanently barred. Separate limitations periods can apply to claims against a trustee for breach of fiduciary duty, depending on when the beneficiary knew or reasonably should have known of the breach. Because these deadlines can run quickly and vary by claim type, anyone considering a trust contest should consult an attorney as soon as a concern arises.
Steps in a Trust Contest
- Pre-filing investigation. Before filing, an attorney typically gathers and reviews the trust instrument and any amendments, the trustor’s medical and financial records, prior estate planning documents, and any correspondence bearing on capacity, influence, or the trustee’s conduct.
- Filing the petition or complaint. The contesting party files a petition or complaint in the appropriate Oregon circuit court, identifying the trust, the relief sought (such as invalidating the trust, removing a trustee, or compelling an accounting), and the factual and legal basis for the claim.
- Notice to interested parties. All beneficiaries, the trustee, and other interested persons must be given notice of the proceeding and an opportunity to respond or join the case.
- Discovery. The parties exchange relevant documents and information, which may include trust accountings, financial records, medical records, and depositions of the trustee, witnesses to the trust’s execution, or the drafting attorney.
- Mediation or settlement negotiations. Many Oregon circuit courts require or encourage mediation before trial, and trust disputes are frequently resolved through a negotiated settlement among the beneficiaries and trustee rather than a final court judgment.
- Trial. If the matter does not settle, the case proceeds to a hearing or trial before a circuit court judge, who will determine the validity of the trust or resolve the administration dispute based on the evidence presented. Trust contests are generally tried to the court rather than a jury.
- Judgment and appeal. The court enters a judgment resolving the dispute, which may include invalidating all or part of the trust, reforming its terms, removing or surcharging a trustee, or ordering an accounting or distribution. Either party may appeal the judgment to the Oregon Court of Appeals.
Practical Considerations
Trust litigation can be lengthy and expensive, and Oregon courts have discretion to award attorney fees out of the trust itself in some circumstances, which can affect every beneficiary’s share regardless of who prevails. Because trust documents are often private until they become irrevocable, a prospective contestant may need to first request a copy of the trust and any accountings from the trustee, who has a statutory duty under ORS 130.710 to keep beneficiaries reasonably informed. Given the strict notice deadlines, the fact-intensive nature of claims like undue influence and lack of capacity, and the potential for the dispute to affect family relationships for years to come, anyone considering contesting a trust, or anyone served with notice that a trust contest has been filed against them, should consult with an experienced Oregon trust and estate litigation attorney promptly.
Contesting a trust does not guarantee any changes to the trust will occur.
Note: our blog posts are provided for informational purposes and do NOT constitute legal advice.