Traditionally, a Last Will and Testament was used as the primary method for determining how a decedent’s estate assets would be distributed during the probate of an estate. A Will remains the most common estate planning document today; however, a comprehensive estate plan typically includes additional estate planning tools and strategies as well. Among the most common of those additional tools is a trust. In fact, many people choose to use a trust as the primary method for distributing their estate assets instead of a Will. Trusts have become so popular that there is now a specialized trust for almost any estate planning goal. Although there are now a wide variety of specialized trusts, one thing that all trusts have in common is a Trustee to administer the trust. The Trustee is often the key to the success of the trust or the primary cause of the failure of the trust to achieve its purpose. Given the importance of the Trustee’s position within a trust, what can you do if the Trustee is not doing his/her job correctly or is otherwise causing the trust to fail? A Grand Fork trust administration attorney explains under what conditions a Trustee can be removed.
Who Can Remove a Trustee?
The first consideration when discussing the removal of a Trustee is who has the power or authority to attempt the removal of the Trustee. The answer to that depends, to a large extent, on the type of trust involved. All trusts fall into one of two categories – testamentary or living trusts with the former not activating until the death of the Settlor (creator of the trust) and the latter activating during the lifetime of the Settlor. Living trusts are then further divided into revocable and irrevocable living trust while testamentary trusts are always revocable by the Settlor until his/her death. If the trust in question is a revocable trust, the Settlor retains the authority to modify the trust, including removing the Trustee and appointing a new one. If the trust is an irrevocable trust, or the Settlor is no longer alive or is incapacitated, the authority to remove a Trustee must lie with someone else.
A Trustee himself/herself always has the ability to decline to serve or to resign once he/she has accepted the appointment. The trust agreement may also provide guidance if the Settlor granted an individual or group of individuals the authority to remove a Trustee. The Settlor may also have given the beneficiaries the authority to remove the Trustee in the trust agreement. Even if the Settlor did not specifically grant that authority to the beneficiaries, a court may grant it if the beneficiaries petition the court for the removal of the Trustee and provide a compelling reason. That brings us to the reasons why it might be necessary to remove a Trustee.
Reasons to Remove a Trustee
A Trustee is responsible for managing and investing the trust assets and administering the trust terms. The duties and responsibilities of a Trustee are numerous and wide-ranging, meaning there is certainly room for error. An error, however, can cause the trust purpose to fail. Removing a Trustee is a serious step; however, under certain conditions, it may be necessary, such as:
- Failing to follow trust terms – a Trustee must abide by all terms as created by the Settlor unless a term is illegal, impossible, or unconscionable. A Trustee who fails or refuses to abide by the terms of the trust can be removed.
- Mismanaging trust assets – a Trustee is in a fiduciary position, meaning that the Trustee must handle the trust assets with the utmost care. Furthermore, when a Trustee invests trust assets, the “prudent investor standard” must be used. The prudent investor standard requires the Trustee to only invest in risk-averse options and to consider retention of the principal to be the most important consideration when making investments. If the Trustee does not act as a fiduciary or fails to invest using the prudent investor rule, removal may be warranted.
- Self-dealing – a Trustee cannot engage in “self-dealing” which basically means that the Trustee cannot manage the trust assets or invest those assets with the intention, or goal, of benefiting himself/herself. This is not to say that a Trustee can never benefit from a trust. In fact, sometimes a Trustee is also a beneficiary of a trust; however, the Trustee cannot make decisions with his/her own self-interest at the heart of those decisions.
- Conflict of interest – sometimes a conflict of interest arises between the Trustee and the trust purpose, the trust terms, or the beneficiaries of the trust. If that occurs, it usually best to remove the Trustee.
- Good cause – the term “good cause” is effectively the “catch-all” for situations that do not neatly fall into one of the common categories, but that call for the removal of a Trustee. Good cause can be used anytime a compelling argument can be made to the court for the removal of a Trustee but the surrounding facts and circumstances do not fall into one of the previous categories.
Contact a Grand Forks Trust Administration Attorney
If you have additional questions or concerns about removing a Trustee, contact an experienced Grand Forks trust administration attorney at German Law by calling 701-738-0060 to schedule an appointment.