Trust administration often involves a trustee following the instructions of the trustor regarding asset management and distribution. Sometimes, however, the trust may face legal controversy.
Trust litigation can occur because people claim outside influences or a lack of capacity compromised the trust-making process. Trust litigation could also become necessary when people question the conduct of the trustee.
Occasionally, claims by outside parties about the legitimacy of the trust’s creation may force the trustee to defend trust resources in civil court. The people who fund trusts may do so to protect their resources. In some cases, outside parties may claim that a transfer to a trust was fraudulent because it was an attempt to avoid legitimate financial obligations.
Fraudulent conveyance does occur
A fraudulent transfer, also known as fraudulent conveyance, involves moving property into a trust in an attempt to defraud others. Often, the goal is to avoid collection efforts and litigation by diminishing personal assets.
For example, a person with assets who has decided to stop paying their creditors regularly might move their most valuable resources into a trust before ceasing their monthly payments. At that point, they might insist to their creditors that they lack any resources. Other times, people only create trusts in response to a direct threat to their assets, such as escalating collection efforts. Details about the situation often influence how the courts respond to claims of fraudulent conveyance.
Trustees trying to protect the resources that fund a trust from claims by creditors owed money by the trust creator often need assistance understanding the law and responding appropriately to pending litigation. Securing legal support is critical when a trust faces legal controversy and the threat of litigation.