Preparing for a trust contest: Tips for protecting the client and the plan

As a trial court judge for nearly 25 years and now as a mediator, I have encountered thousands of trust and estate disputes. For most people, creating a trust or will is a rewarding decision that allows for the proper management and distribution of assets as they intended, with minimal need for court intervention. However, even a well-considered and properly executed estate plan may be challenged when a settlor and/or drafting attorney fails to identify potential vulnerabilities or take steps to protect the plan from an unhappy interested party. Although these observations are not those of an estate planning attorney, they reflect practices that may help preserve clients' intentions and avoid costly litigation over their estate plans.

Approximately 90% of the trust and estate matters I handle in mediation arise from trust disputes. Most trust contests arise either after a settlor has passed or is determined to be incapacitated. Litigation is usually initiated by unhappy beneficiaries who feel the terms of the instrument are unfair and/or in conflict with the settlor's wishes.

Many trust contests involve children of trustors who have directed unequal distribution of the trust assets. The underlying motivations are often quite reasonable. For example, one child may have received something at an earlier time that the trustor views as an appropriate offset against future trust distributions. Another common trigger for trust disputes by children involves trust restatements or amendments that occur after a parent marries a new spouse. Any trust changes in favor of the new spouse can be interpreted as resulting from undue influence or incapacity.

Identifying potential challenges early

When a drafting attorney becomes aware of potential conflict among heirs or beneficiaries, it is never too soon to gather information and guide a settlor on how to protect the estate plan. This requires an early assessment of the client's goals and ability to understand an estate planning document. Lawyers are not physicians or psychologists, yet they are obligated to determine if the client has sufficient capacity to understand an estate plan and is acting independent of improper influence. For most lawyers, this part of the process involves a private conversation to confirm the client's wishes and assess their understanding of the terms to be incorporated into the trust. Any beneficiary who accompanies the client to the meeting should not be present during this conversation. With elderly clients, capacity can be a difficult issue. When are small memory lapses and difficulty following trust provision explanations enough to cast a doubt on capacity? Is one child going to receive substantially more from the trust than other children? Such red flags must be assessed by the planning attorney. Further, clients with cognitive impairment may display sufficient capacity to execute a trust on one occasion and inability on another. Unequal trust distributions demanded by such a client may later become issues to be litigated.

Safeguarding the estate plan

How can counsel protect a vulnerable and cognitively impaired client from a trust contest that may be brought years after the instrument was created? Although no trust instrument can be entirely bulletproof, counsel can adopt practices that may reduce litigation risk and strengthen the plan.

1. Seek a professional evaluation before the trust is signed. If there are concerns about a client's capacity, counsel should consider engaging an experienced neurologist, psychiatrist, geriatrician or even the client's primary physician to conduct a cognitive evaluation.

Some clients will resist this approach. They may be angered by the suggestion that reduced cognitive function or undue influence could be impacting their decision-making. One approach to dealing with a client's reticence is to reassure them that they will emerge from the assessment with a positive result (even if there is some doubt). Another approach is to tell the client that submitting to an examination yielding a positive result will quell concerns beneficiaries may harbor and demonstrate the settlor has made proper and considered decisions regarding the trust.

If the client demonstrates capacity, the test results will be useful in responding to later challenges. No matter what the outcome of a professional cognitive assessment, the process can be extremely valuable in helping both the client and counsel create estate planning documents.

• California Probate Code Section 21380 issues: Sometimes trusts involve donative transfers to presumptively ineligible persons. Despite this red flag, some drafting attorneys fail to seek the protection of a certificate of independent review pursuant to California Probate Code Section 21384. This failure heightens the likelihood a contest will be successful.

2. Encourage the client to avoid surprising the beneficiaries upon their death. Many settlors want to avoid unpleasant reactions from beneficiaries who might dislike the trust disposition provisions. Thus, beneficiaries don't learn about the plan until after the settlor's death. This course of action dramatically increases the likelihood of confusion, unhappiness and accusations of incapacity and/or undue influence. Some mediations involve such a surprise. However, there are techniques some document drafters encourage clients to adopt to lessen the risk of litigation:

• The settlor could tell everyone about the plan in a family meeting.

• The settlor could write a letter to all beneficiaries explaining the basis for the plan. The letter could be distributed while the settlor retains capacity. In the alternative, the settlor could deposit the letter with counsel to be released along with the trust after their death to the beneficiaries.

• The settlor could authorize counsel to provide a copy of the trust and meet all beneficiaries to explain the plan.

Another approach, although uncommon, may also have merit. When a trust contest is likely, counsel may encourage their client to record a video discussion with them at the time of signing. A best practice for such an approach might involve the drafting attorney asking their client open-ended questions so the client can demonstrate their understanding of the key provisions of the trust and reiterate their desires, along with any corresponding explanations.

Some attorneys may be uncomfortable creating a video record, and the practice may not be appropriate in every matter. However, when a challenge seems probable, a recording could become an important tool to protect the trust. Several sitting and retired probate judges consulted about this approach indicated that they would prefer to admit and review such a recording as part of a trust contest proceeding.

A trust contest can either arise shortly after document execution or lie dormant for decades. Either way, practitioners should consider using all available safeguarding measures to protect the client and the instrument from anticipated challenges.

Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.

Hon. Gerald G. Johnston (Ret.) is a JAMS mediator, arbitrator and court-appointed neutral who joined JAMS after more than 24 years on the Orange County Superior Court. A former supervising judge of the court's Probate and Mental Health Division, he has extensive experience with trust, probate, guardianship, conservatorship, elder abuse and mental health matters.