A trust is a legal instrument in which the person establishing the trust confers upon one party (the trustee) the right and responsibility to hold title to property or assets for the benefit of another party (the beneficiary). Trusts can be useful for a variety of purposes, from maximizing your estate tax exemption to ensuring that a loved one who is unable to manage his or her own finances is well cared for.

Of course, sometimes things go wrong. There may be ambiguities in the terms of a trust, alleged breaches of a trustee’s fiduciary duty, or disagreements on discretionary distributions. Simply stated, when beneficiaries and trustees do not see eye to eye, trust litigation may be the inevitable result.

A Minnesota District Court can offer remedies in a trust dispute. Yet, any time you engage the services of an attorney, cost is a legitimate concern. Whether you are a trustee who needs to defend your administration of a trust, or a beneficiary who needs to take legal action to curtail a trustee’s mismanagement, there are some special guidelines concerning legal fees in trust disputes that you should be aware of.

Fees may be payable from the body of trust

Trustee’s Fees

It’s unlikely that a grantor would want to burden a loved one named as trustee with the prospect of personal responsibility for legal fees. It’s equally unlikely that a bank or some other type of financial institution would accept the mantle of trustee if doing so would mean taking ownership of all fees incurred in defending the trust.

Beneficiary Fee’s/Interested Person Fees

There are evident policy reasons for paying a trustee’s reasonable legal fees from the body of a trust — who would serve as a trustee if we didn’t? — and most well-crafted estate planning documents explicitly provide for the payment of a trustee’s legal fees. Yet, it is not the trust document alone that governs payment of legal fees. In some cases, even beneficiaries or other parties to trust litigation may be awarded legal fees from the body of the trust.

It is well established under Minnesota law that an allowance for reasonable attorney’s fees may be paid out of the body of a trust to a party defending or bringing a claim in good faith for the benefit of the trust. More than half a century ago, in the case In re Atwood’s Trust, the Minnesota Supreme Court held that reasonable attorney’s fees from the body of a trust could be awarded to both sides, regardless of whether their interests were ultimately promoted or defeated in the litigation, because clarification of the ambiguous trust provisions at issue was of value to the entire trust.

When is a claim for the benefit of the trust?

A claim is for the benefit of the trust if it serves to effectuate the true wishes of the grantor. Examples of claims that might be for the benefit of a trust include: