What Happens When a Living Trust Is Contested?

What is a Living Trust?

A living trust is an arrangement in which a living person who owns a property assigns someone to own and manage that property on behalf of another person (of the property owner's choice). The person who creates the trust is called a settler (or grantor, or simply a trustor in some jurisdictions). The person on whom the management of the property is assigned is called the trustee. The person for whose benefit the property is being managed by a trustee is called a beneficiary of the trust.

The trustor can still be the trustee in the management of her property for the beneficiary's benefit. When this happens, there will usually be a need to appoint yet another person called the successor trustee, who takes over the ownership and management of the property in question upon the original owner's (the trustor's or trustee's) death. The successor trustee distributes the ownership and management of the property to the beneficiaries of the trust.

When a Living Trust is Contested

A living trust can be contested. What happens after this depends on the outcome of the court case. Normally, a living trust will be contested on the grounds that the person who created the trust either lacked the mental capacity to do so (to create a proper trust) or that he was unduly influenced in creating the trust, naming beneficiaries to the trust and declaring the level of benefits due to them from the trust.

If it's proven that the trustor didn't have the full mental capacity to create the trust or that he was unduly influenced, the living trust will be declared invalid. This will normally be followed by another round of legal proceedings to determine how the property that was held under the trust should actually be managed and distributed. In most cases, the result will be distribution of the property under the provisions of common law.

When a Contest Fails

When it's not proven that the trustor didn't have the full mental capacity to create the trust or was unduly influenced, the living trust will take its course and the ownership of the property is passed on to the beneficiaries, as provided for in the living trust documents. The person who instituted proceedings contesting the living trust might be required to pay the legal costs incurred by other parties.