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If you are the beneficiary of a trust, or the beneficiary of the estate of a deceased loved one in which a trust has or should have been created, make sure you understand your role and rights to avoid trust litigation. All trusts must have a trustee to manage the trust and potentially make disbursements to the beneficiaries according to the trust provisions. Sometimes the trustee and the beneficiary are the same person. In this case, there is little conflict. Where the trustee and the beneficiary are not the same person, and the beneficiary and trustee begin to disagree on how best to manage or disburse trust funds, then issues arise. Some of the issues may only be resolved in litigation. If you have arrived at this point, it is essential to work with an attorney who is knowledgeable about trust law and litigation to help you access what you are entitled to.

What Is a Trust?

Essentially, a trust is a contractual relationship by which there are at least three parties:

1. This person gives some type of asset over to a trustee. The asset can be money, accounts, property, etc.
2. The trustee is charged with holding something for the benefit of one or more beneficiaries. A trustee is often a relative, business associate, bank trust department, or formal trust company.
3. Beneficiary (or beneficiaries). The beneficiary is the party that is intended to eventually receive something from the grantor via the trust.

Types of Trusts

There are different types of trusts. For the purpose of today’s discussion, we will limit it to:

• Intervivos Trust. In this type of trust, property is given over during a grantor’s lifetime.
• Testamentary Trust. A testamentary trust can come out of a will from someone who has passed and leaves all or part of their estate to a party such as children or grandchildren.

What to Know About Trust Litigation

Unfortunately, there is litigation that can arise out of trusts. Even if a trust is put together with a knowledgeable attorney, if a trustee becomes irresponsible or untrustworthy, it may open the door to trust litigation.

A trustee has a fiduciary duty and must account for funds in the trust (i.e. keeping tax returns, books, bank account records, investment records, and expenditures). A trustee cannot spend money on themselves or engage in activities or investments that a prudent businessperson would not.

Trustees must also look out for the best interest of beneficiaries and in a reasonably conservative way for investments so there are no challenges to a trustee if something goes bad or breaches the business judgement rule. If a trustee mismanages, self-deals, or does something irresponsible, they could be accused of violating the business judgement rule.

One of the most common scenarios is a dispute between a beneficiary (or beneficiaries) and the trustee. A beneficiary may want their money for any number of reasons, but the trustee is given some discretion to decide if the beneficiary gets it or not. There may even be a clause included in the trust that stipulates the trustee has discretion to make distributions until said beneficiary (or beneficiaries) turns a certain age. This type of stipulation is generally executed as a protection against creditors by waiting until the liability goes away before distributions to beneficiaries begin.

Another trust litigation scenario is that beneficiary B complains that beneficiary A got all the money, which is not what the trust agreement said was supposed to happen (like it should have been an even split) or the trustee used their discretion and then that discretion is questioned.

There are times when the trust assets cannot be managed or disbursed as the grantor intended. Where circumstances don’t align with the language in the trust document, trustees or beneficiaries may have to get what is called a “Declaratory Judgement.”  For example, if an asset such as an apartment complex is in a trust, a trustee may manage it or hire managers, and manage it for ten years. However, if a person comes along and wants to buy the apartment complex, or a government entity is going to put a highway through it and initiates the process of Eminent Domain, then the trustee may end up managing money instead of a property. At this point in time, the trustee may just want to make a distribution. If the trust document does not include instructions for the trustee on how to manage or disburse large sums of cash assets, it may cause problems. Rather than having the trustee make the decision and expose themselves to mismanagement claims or a breach of duty, it may be easier for a trustee to ask a court for a declaratory judgment, tell them the plans to give X amount of money to beneficiaries and X amount of money to creditors and ask the court to approve the decision. Should the beneficiaries complain against one another at this point, the trustee can let them argue about it, but be secure in doing whatever the court advises or orders.

Trusts with oil and gas interests are common in Texas. Great grandparents may put an oil and gas interest in a trust as part of their legacy. If the grandparents owned the land and then passed, the trustee for the grandkids or possibly the grandkids themselves are likely cashing royalty checks. This can create a host of legal issues as well.

In terms of trust litigation, probate courts in Texas have jurisdiction over trusts, so in a lot of counties there will be trust disputes brought into a statutory probate court as opposed to a district, federal, or county court. Probate courts see more of this type of lawsuit, sometimes making them more beneficial than other courts.

Sometimes trustees are bonded and sometimes they are not. Bonded companies will go after a trustee that creates a liability because they have to put up their money. It is important to understand that when you start requiring a bond that the trustee be a trust company or the trust department of the bank, you are adding a lot of expense. However, without it you run the risk of using a trustee that is not sophisticated enough or is so sophisticated that they take advantage of the situation. The takeaway here is to be wise when naming a trustee for your trust.

Why Work with an Attorney in Dealing with Trust Litigation Issues?

Trusts can still be subjected to trust litigation. However, there are several ways attorneys can assist in limiting these issues, such as:

• Enlist their help in wording and formalizing official trust documents. Experienced legal counsel should be able to use key legal phrases that strengthen these contracts.
• Ask them to explain your rights as a beneficiary to you if you are unsure you are getting the money you believe you are due according to the terms of the trust.
• Get legal counsel if you believe the trustee has abandoned his fiduciary duties.
• Sue a trustee that has not carried out their fiduciary duties.

At the end of the day, people are imperfect, so trust litigation can ensue. As such, make sure you have an experienced and successful trust attorney by your side every step of the way.

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Settlement agreements are legally binding contracts used to resolve disputes between parties. Those who seek legal counsel for settlement agreements are typically either about to enter into an agreement, or they have an existing agreement that has been breached and they want recourse.

The first question an attorney will likely ask a client about their dispute is, “What are you settling?” In some cases, it may have to deal with money owed. However, settlement agreements do not always center around money.

If you are facing the development of a settlement agreement or the breach of one, it is critical to know what they are, what matters they concern, if this process applies to you, the advantages of these types of agreements and how attorneys can help.

What Are Settlement Agreements?

Settlement agreements are binding contracts that consist of terms that two or more parties agree upon in written form. To be enforceable, the agreements must include the parties’ signatures and possibly even a notary’s signature and stamp. When done properly and with the help of an attorney, this yields an official document that says the parties have come together to agree on the terms therein and that they will abide by them.

The process for arriving at the need for settlement agreements is fairly simple:

• There is a dispute.
• The parties raise the dispute, possibly in litigation.
• The parties decide if they want to settle the dispute, or proceed to a trial.

When the involved parties must have a resolution, it requires either litigation or settlement. Settlements may include acquiescence by one of the parties, or a compromise by both or all.

 

Do I Need a Settlement Agreement?

Many people often need help discerning if their situation requires a settlement agreement.

In general, to justify a settlement agreement there needs to be either:

1. An active dispute
2. The potential for a dispute that the parties want to resolve before it becomes critical and does serious damage to the business or the persons involved

 

Breached Settlement Agreements

Because settlement agreements are binding contracts, parties may find themselves in a situation in which one or more individuals breaches the contract (i.e. does not take the action or refrain from an action they promised in the agreement). Often, the only recourse for this is litigation.

To prevent any room for misinterpretation of a settlement agreement, it requires that the terms be well-defined and detailed. It should include exactly what needs to be done to solve existing differences and comply with the terms of the settlement agreement. It should also include provisions for what rights a party has if the other party does not abide by their promises in the agreement.

 

The Advantages of Settlement Agreements

A lawsuit may have already been filed relating to the underlying dispute. At this point, the other party might decide they would rather settle outside of court and come up with a mutual agreement to get the court case dismissed.

There is an advantage of making a settlement agreement instead of taking the case to court. When a lawsuit is filed in court, it becomes public information. Decisions that juries and judges make are viewable by the general public.

However, in a settlement agreement, the parties can agree to terms that are not made public, which keeps the terms under wraps and avoids a long, drawn-out litigation process while still coming to a settlement. This is typically the most desirable option.

 

Do Settlement Agreements Require an Attorney?

People tend to look at the positive when it comes to settlement agreements and hope for the best outcome. Unfortunately, it seldom happens this way. It is difficult to imagine all possible scenarios and include language in the agreement which accounts for various outcomes. This means that, theoretically, attorneys are needed to compose and evaluate these documents to ensure the agreement is clear, valid, and enforceable.

When individuals try to develop their own settlement agreements without legal counsel, the outcome is not always the desired one.

It is not uncommon for individuals to decide on a settlement agreement, draft it up, and come together to sign. It may be that suddenly one party decides they do not want to sign. This means there is simply an unenforceable draft of the document, not an actual settlement agreement.

It could be a case where two parties drafted their own agreement, but the agreement did not make good sense due to contradictions or ambiguous language. The interpretation of the document could lead to many issues. Some cases take years to hash out what the parties’ intended. If the agreement regards the sale of real property, the sale could be delayed until the language in the agreement is resolved.

A reputable attorney with years of experience will be able to anticipate what kind of problems there are, discuss them with the parties, and incorporate them into the agreement to prevent contradictions and misinterpretations.

On the flip side, if a settlement agreement has already been made but breached, a lawyer can help clients manage the legal consequences or penalties of that breach. A breach allows the non-breaching party some rights and remedies from a wisely worded settlement.

Attorneys generally have a stronger and more complete knowledge of the statutes that protect their client’s rights. This means that a client might be able to bring a dispute to an attorney, and legal counsel would know that under something like the Texas property code, certain terms apply, and this means their rights are designated as X, Y, and Z.

It is possible to have an amicable settlement agreement. Yet, there are those individuals that no matter what they receive in a settlement, they will turn right around and ask for more tomorrow. The trick to crafting a solid settlement agreement is to make it so that you do not have to give said individual anything tomorrow.

 

To protect yourself and your rights in settlement agreements, enlist the help of a reputable and experienced Houston attorney.

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Most people cannot proceed in life without trusting others, but it is not recommended for people to enter into joint financial arrangements without first doing background checks and possibly putting protective measures in place. It may be tempting to wholly trust a business partner you have known for a while and know to be a standup person, but, even in this situation, not performing due diligence could end up costing you.

Why Protection Is Needed in Any Type of Financial Arrangement

As virtually any seasoned business attorney will tell you, they have yet to discover a person with a perfect halo. Therefore, everyone needs protection when entering into a financial arrangement.

It is not uncommon for someone to partner with someone else in a business venture or transaction only to find out that their trust was misplaced. It is important to note that it does not have to be a business transaction, per se, but usually involves some kind of financial deal in which you are not the sole player.

Unfortunately, some people find out the hard way that trusting someone  else with money or carrying their share of financial liability may lead to disappointment when the other person fails to live up to your expectations.

Some of the situations in a financial joint venture that can occur without protection include:

• One financial partner running off with a bunch of the money and leaving their partner to face debts and liabilities alone
• Both financial partners taking out a loan for their business or a mortgage on real property, but when the business tanks and the bank or lender contacts you for repayment, one financial partner takes off, leaving the other to pay off the loan or mortgage by themselves
• One financial partner takes the business in a new direction without an agreement in place
• One financial partner wants to start their own business using company assets like equipment or customer contacts and there is not a non-compete agreement in place

The question then becomes, how you protect yourself from something like one of the above taking place?

 

What You Can Do to Protect Yourself

While it can be true that to get by effectively in this life, you have to trust people, there are still steps you can and should take to protect yourself. It is possible to trust a person and still have a remedy in place should that trust fail. No one wants to end up partnerless and owing a substantial amount of money to the IRS, a bank, or some other third-party creditor because they misplaced their trust.

It is highly recommended that an individual entering into a financial joint venture proactively address remedies for potential issues. It is recommended to do a deep dive into the potential partner’s history by:

• Learning who they have previously dealt with
• Discovering what their past consists of
• Talking to people they have previously worked with
• Finding out if they are convicted criminals
• Identifying if they have been sued before
• Discovering if they have ever declared bankruptcy.

It is also critical to make disclosures. In other words, identify what it is that you want the other partner to do. It is necessary to have whatever it is the person is promising in writing. It is advisable to seek a lawyer for this step in the process. A business attorney can ensure those promises and expectations put in writing are enforceable

Additional practices to consider when entering a financial transaction with another person include:

1. Have audited financial statements for your company
2. Establish other people to watch over the business and oversee it (instead of entrusting it all to one person)
3. Be an active partner, as silent partnerships where one person supplies the money and the other person does the work can be unstable at times
4. Put non-compete and confidentiality agreements in place
5. Consider worst case scenarios and put in provisions that detail explicitly what may happen if one person breaches their agreement

 

Are There Exceptions to the Rule of Protection in Financial Joint Ventures?

The short answer is that there are no exceptions to the rule of protection in financial joint ventures. Everyone needs protection because there is no way to anticipate what could happen a few weeks, months, or years down the road.

For example, let’s say you want to enter into an agreement with a good friend from college that you have known for years. Should you still take proactive measures to ensure your protection? Yes, and even though you know the person, you should start by looking into their history.

It is necessary to think of all the possible implications. If the friend is creative and a hard worker, that is fantastic, but they may not have any money to put up in the joint venture. If this friend will need to sign a guaranty or co-guaranty on something like a million-dollar debt, it may simply amount to a good gesture that may be worthless if there is a default.

Harsh as it can seem to take steps to protect yourself against long-term friends, it is essential.

 

Can You Ask Someone to Get Bonded?

If there is a deal for which there is a market that would be bonded (like a construction contract), yes, you can ask someone to get bonded. The way this works is that there is generally a bond or amount of money that is promised and put up by a solvent surety, such as a bonding or insurance company. These entities do this in exchange for getting a fee and will put money up to secure something that a party is supposed to do.

There is no fixed amount for bonding. Sometimes it can be a flat fee like ten percent of a bond, or other times it may require putting up collateral equal to the amount of the bond.

If a bond is in place and the deal does not go through, the impacted party can simply have the surety cover the liability instead of having to chase the other person’s assets. The bonding company, who typically has a good deal of money, can come forward and finish the project. However, the bonding company may in turn sue the person who broke the deal.

When it comes to protecting yourself in a financial joint venture, hire an attorney, and together be sure to get written agreements in place, get an understanding, make plans for oversight, do thorough background research, and keep up with what is going on in the business. These are the best alternatives to blindly trusting someone when money is involved.