Study reveals estate-planning choices likely to cause conflict

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Trusts are designed to keep wealth out the public eye, and inheritance battles usually happen behind closed doors. But a first-of-its-kind study of hundreds of contested trust cases offers a rare look at the circumstances that can send heirs to court.

One of the biggest pitfalls for handing down wealth is choosing one child to control a family trust when siblings or other relatives would also benefit, according to the analysis of 640 trust disputes, published in the Washington University Law Review earlier this month.

Christopher Ryan, one of the study’s authors and a professor at Indiana University Maurer School of Law, described this specific trust setup as “an important recipe for conflict.”

“That arrangement could combine ordinary sibling rivalry with a genuine power imbalance,” he told CNBC via email. For instance, he added, giving one child privileges such as discretion over trust distributions can deepen preexisting feelings among siblings that a parent played favorites.

The study identified contested trust disputes by examining thousands of civil filings that were scheduled to come before San Francisco Superior Court between 2014 and 2020. Ryan co-authored the study with Reid Weisbord and David Horton, law professors at Rutgers Law School and University of California, Davis, School of Law, respectively.

Nearly a quarter of the reviewed disputes involved a descendant beneficiary suing another descendant beneficiary who was also a trustee. Many of the petitioners were siblings — whether through blood or marriage — though some may have been grandchildren, noted Horton.

Nearly all of the petitions involved revocable trusts, a common tool to allow a successor trustee to manage the settlor’s property long after their death.

While trusts are often used to avoid the time and expense of probate, they can draw families into costly disputes that span months or years. The average case, including filings that were settled, lasted 481 days.

The study found that in 74% of cases a trustee was accused of misconduct, often specifically breach of duty of care or loyalty. In nearly a third of petitions, beneficiaries requested a detailed accounting of the trust’s finances, which Horton said reflects beneficiaries who suspected their trustees were mismanaging funds or ripping them off.

Many of these fights appeared to be driven more by emotion than money, according to Horton. He highlighted the case of the Mar siblings, who spent their trust’s entire cash assets and more than five years in litigation.

Raymond Mar, who died in 2016, gave his son the right to live rent-free in his home for the rest of his life. The siblings went to court after they disagreed over whether the son could accept a…