(6) Trusts: Challenging the Validity of a Trust

Question 1

Overall Rule:

Challenging the Validity of a Trust

Answer 1

A trust may be set aside by a court upon a finding of (a) fraud or (b) undue influence. The elements to establish fraud and undue influence are the same as that when contesting a will.

Question 2

Fraud

Answer 2

A trust is fraudulent if a person (1) intentionally made a misrepresentation; (2) of material fact; (3) in order to induce the settlor to creator the trust or change the contents of the trust; and (4) the settlor did so.

Question 3

Definition & Rule

Undue Influence

Answer 3

Definition: Undue Influence occurs when a person exerts influence that overcomes a settlors’s free will and judgement.

Rule: Undue influence is established when: (1) the settlor had a weakness that made them susceptible to influence; (2) the wrongdoer had access to the settlor and an opportunity to exert influence; (3) the wrongdoer actively participated in drafting the will; and (4) there is an unnatural unexpected result.
*The weakness can be mental, physical or financial.

Question 4

Common Law Presumptions

Undue Influence

Answer 4

Common law presumptions are established if (1) a confidential relationship existed between the settlor and the wrongdoer; (2) the wrongdoer actively participated in creating the trust; and (3) there is an unnatural result.
*under common law the affected provision is invalid.

Question 5

California Statutory Presumptions

Undue Influence

Answer 5

In CA, a statutory presumption of undue influence is established if the settlor provides in the trust to (1) the person who helped set up the trust; (2) a care custodian of a settlor who is a “dependent adult”; (3) a person in a fiduciary relationship with the settlor; (4) a person who is a spouse, domestic partner, employee or related by blood to a person in one of the previous 3 circumstances; OR (5) a partner, shareholder, or employee of the law firm in which a person who helped set up the trust or one in a fiduciary relationship with the settlor has an ownership interest.
*under CA statutory presumptions the gift to the wrongdoer lapses.