Somewhere out there is a common misconception that a revocable, living Trust cannot be contested in court. That’s false. You can go to the courthouse in any county in California today and find thousands upon thousands of Trust contest cases. By Trust contest case, we mean a lawsuit to try to invalidate or set aside a Trust or Trust amendment.
While it’s hard to say how this misinformation starts, it could be from the fact that Trusts do not require court supervision to be administered. In other words, when the Trust settlor (the Trust creator) dies, the successor Trustee can follow the terms of the Trust, pay creditors, and distribute assets out to beneficiaries without ever having to step foot in court.
This is quite different from the administration of Wills. With a Will, you must file a petition for probate in court, and then the court will oversee the process from start to finish. In fact, with a Will there are a lot of actions that cannot be taken without a court order. For example, the executor cannot be paid, the attorney for the executor cannot be paid, and the beneficiaries of the Will cannot receive a dime without a court order.
In short, Trusts are administered by the Trustee outside of court, and Wills are administered by the executor through a court process called probate—very different paths. Since Wills have heavy court oversight, and Trusts don’t, many people think Trusts cannot be contested in court. But that’s where they are wrong.
While a Trust can be administered outside of court, a Trust can also be dragged into court by the Trustee, the Trust beneficiaries, or an heir-at-law of the Trust settlor who was disinherited under the Trust document.
Furthermore, a Trust can be contested on all the same grounds for which a Will can be contested. The most commonly used grounds include: lack of capacity, undue influence, fraud, or some problem with how the document was signed.
Since a Will starts in court, it does give a ready forum to challenge the Will and contest its validity. But bringing a Trust contest is not hard. A Trust contest petition can be drafted and filed with the court, and then the contest begins. The possibility for a Trust contest is just as likely as the possibility for a Will contest—there really is no difference.
The next time someone tells you that a Trust document cannot be contested in court, you now know that is false.
It is possible to avoid a Will, and this avoids the court process altogether. However, when the Trusts have been set up for reasons of estate tax avoidance, trusts can also have more hidden pitfalls and tricks than a Will.
The first way Trusts can put you in a trap is with a so-called “self-settled” trust, which requires no special court process to set up. All you have to do is go to your bank, open a new Trust, sign some papers, and deposit the check. No court process is required. However, some states require you to file a document in court that says that you want your assets held by this Trust for an indefinite period of time, otherwise the Trust will go away when you die. Even if you don’t want the Trust to last forever, you need to tell the Trustee that it is not safe to have the assets in the Trust.
