Estate Plans often incorporate revocable and irrevocable trusts. Regardless of the type of trust created or the reason for its creation, naming a suitable trustee to administer the trust requires careful consideration. After all, the trustee acts as the gatekeeper for the trust, doling out distributions pursuant to the terms of the trust agreement using their discretion. While some grantors name beneficiaries to serve as their own trustees, certain circumstances require a third party to act in that capacity. Beneficiaries of trusts with someone other than themselves as trustees need to understand their options when their relationship with the trustee sours.
As a quick recap, Part I explored asking the Trustee to resign, using provisions in the trust to remove the Trustee, employing Non-Judicial Settlement Agreements, and modifying by consent. If none of those options present a workable solution for the beneficiaries, then they may consider changing the situs of a trust to benefit from more favorable statutes in a new jurisdiction provided that the trust and its administration has sufficient contacts with the new jurisdiction. Failing that, decanting the trust to a new trust with a new trustee or reforming the trust to replace the undesirable trustee, may also prevent workable alternatives, but require cooperation of the trustee on some level. These options generally allow the beneficiaries and the trustee to remain out of court; however, sometimes the parties cannot avoid court.
If the beneficiaries find themselves in a situation in which the trustee refuses to cooperate, then the beneficiaries need to broaden their thinking to include court intervention. The beneficiaries may allege unanticipated circumstances. Modification because of unanticipated circumstances generally requires court approval and the modification needs to “further the purposes of the trust” which presents a significant hurdle to overcome.
Instead of trying to convince a judge that the removal of a trustee furthers the purpose of a trust, the beneficiaries may have better luck removing a trustee for lack of cooperation with co-trustees, if applicable, or for failure to administer the trust effectively. The Uniform Trust Code (“UTC”) contains several paths for removal under the umbrella of failure to administer the trust effectively, including substantial impairment of the administration of the trust, unfitness, unwillingness, or persistent failure to administer the trust effectively, or a substantial change in circumstances. These broad categories give beneficiaries several choices. The comments to the UTC underscore that the beneficiaries may demonstrate a trustee’s unwillingness by the trustee’s “pattern of indifference to some or all of the beneficiaries. As should be clear, though, the beneficiaries will have significant obstacles in pursuing this path and will likely incur significant expense as well.
Of course, if the beneficiaries have cause, for example, a breach of fiduciary duty by the trustee, then pursuing the matter in court may be their only option. This represents the most difficult, expensive, and time-consuming method for removing a trustee. Often, beneficiaries need to front these costs from sources outside the trust and the trustee may be permitted under state statute to utilize trust assets to fund their defense. This should be the last resort for removal.
These articles have demonstrated the difficulty that exists in trying to remove undesirable trustees. Well-designed Estate Plans last for years and should include provisions that allow the plan to evolve with changes in circumstances. Even if the plan lacks specific provisions regarding removal of a trustee, beneficiaries have options worth exploring when they want a new trustee. My trusts include provisions to protect the beneficiaries and allow them or a Trust Protector to remove an undesirable trustee.