Although a Last Will and Testament remains the most common estate planning document, trust agreements have gained in popularity to the point where they are a close second. When a trust works as planned it can help to accomplish a wide range of estate planning goals. For that to occur, the Trustee must administer the trust properly and ensure that the trust assets are protected, ideally, increase in value. Sometimes, however, that does not happen. When that is the case, removing the Trustee may be the only viable option to save the trust. A Vero Beach trust administration lawyer explains when and how a Trustee can be removed from his/her role within a trust agreement.
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Why Can a Trustee Be Removed?
The Trustee is responsible for protecting and investing trust assets as well as overseeing the administration of the trust. Removing the Trustee, therefore, is likely to disrupt the administration of the trust. With that in mind, a Trustee should only be removed when doing so is necessary to protect the integrity of the trust purpose and/or the trust assets. Common reasons why removing a Trustee might be necessary include:
- 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 – “good cause” is basically a catch-all for situations that do not neatly fall into one of the common categories, but that call for the removal and/or replacement 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. Furthermore, anyone may attempt to remove a Trustee using the “good cause” option; however, a court will only grant such a request if it convinced that doing so is necessary to preserve the trust assets and/or further the trust purpose as stated by the Settlor.
How Can a Trustee Be Removed?
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.
Contact a Vero Beach Trust Administration Lawyer
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding removing a Trustee, contact the experienced Vero Beach trust administration lawyers at Kulas & Crawford by calling (772) 398-0720 to schedule an appointment.