Thursday, September 2, 2010

Danger to Trustee: Potential Challenge to Validity of Trust

Most people in this day and age establish a revocable trust during their lifetime that becomes irrevocable upon their death. When the Trustor dies, beneficiaries of the Trust, of course, want to receive their share of the Trust as soon as possible after the death occurs. However, the Trustee obviously does not want to distribute the assets of the Trust to the beneficiaries per the terms of the Trust agreement only to then face subsequent litigation contesting the validity of the Trust agreement. What, if anything, can a Trustee do if the Trustee anticipates that someone may contest the validity of the trust?

Nevada law, namely NRS 164.044, furnishes one solution. Under this Nevada statute, the Trustee may provide written notice to any beneficiary of the Trust, to any heir of the Trustor, or to any other interested person within 90 days after the Trust becomes irrevocable (the date of death of the Trustor). The recipient of the notice must bring an action to contest the validity of the Trust within 120 days of the notice being served upon him or her. If the recipient fails to bring an action within such 120 day period, they are barred from doing so later on. Accordingly, once the 120 day period passes without the commencement of litigation, the Trustee can feel relatively safe in making the Trust distributions and not facing subsequent litigation.

A Trustee should also always require a beneficiary to sign a written Receipt and Release in which the beneficiary acknowledges receipt of all property that he, she or it is entitled to under the Trust and the beneficiary releases the Trustee from any and all liability as Trustee. This signed Receipt and Release should be obtained prior to, or contemporaneous with, the Trust distribution to the beneficiary. A Trustee does not want to make a Trust distribution to a beneficiary only to have the beneficiary use the distribution to hire an attorney and initiate litigation against the Trustee and the Trust.

At Jeffrey Burr, our attorneys have many years of experience assisting Trustees in the administration of a Trust after the death of a Trustor and protecting them from the potential pitfalls in serving as a Trustee.

 - Attorney John Mugan

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