Facts to Consider When Removing a Trustee

Estate plans often include both revocable and irrevocable trusts for a myriad of reasons. Regardless of the type of trust created, designating a responsible and suitable trustee to administer the trust is of paramount importance to the beneficiaries of the trust.

The trustee selected is the gatekeeper for the trust. This person, or trust company, is charged with the responsibility of investing the trust assets and making distributions to the individual and/or charitable beneficiaries in accordance with the terms and provisions stated in the trust agreement. 

However, what happens when the beneficiaries of a trust desire to change the original trustee selected by the grantor to serve in the fiduciary capacity as trustee? This edition of Estate Planning Matters will explore the various options that beneficiaries of a trust may use to remove and replace one or more trustees.

As with most endeavors, it often makes good sense to start with the path of least resistance. In this context, that means requesting the undesirable trustee to resign. While this type of conversation may be uncomfortable, the trustee may no longer be interested in co thinking to serve as trustee and agree to resign. In many cases, if the beneficiaries are unhappy with the trustee, they likely have let the trustee know about their dissatisfaction. 

Aa a result, the trustee may decide to resign without a judicial proceeding, especially when it no longer is feasible to satisfactorily administer the trust for the benefit of disgruntled beneficiaries. 

The outgoing trustee will be required to prepare an accounting of all trust activity, including investments, receipts, and disbursements. Once the accounting is prepared, the trustee would request the beneficiaries to review and approve the accounting, then sign a waiver absolving the trustee and discharging the trustee of their current fiduciary responsibilities as well as agree to hold the trustee harmless in the future.

If the trustee refuses to resign, then the beneficiaries need to explore other methods of removal. The parties should look to the trust agreement to determine if the grantor included a specific provision authorizing the beneficiaries to remove and replace the trustee, with or without cause. 

A competent estate planning attorney can provide both the beneficiaries and trustee with guidance to ensure that the parties to the trust consider relevant options when a change of trustee is necessary.  

More specifically, legal counsel can guide the beneficiaries through the trustee removal and replacement process, as well as to ensure that all parties follow the terms of the trust agreement. Even if the document fails to include a power to remove the trustee, the attorney may help the beneficiaries utilize other trust provisions, which often include a change of situs or appointment of a trust protector as a means to accomplish the ultimate goal of removing the trustee. 

If the trust agreement contains no provisions allowing the beneficiaries to remove and replace the trustee, and the trustee is not agreeable to voluntarily resigning, then the trust beneficiaries have several other options that can be pursued for the purpose of removing a trustee. 

In states that follow the Uniform Trust Code (“UTC”), the UTC permits the use of a Non-Judicial Settlement Agreement (“NJSA”) to resolve such situations, if the matter does not violate a material purpose of the trust. However, the use of a NJSA requires agreement by all interested parties. Determining which parties qualify as “interested parties” requires engaging a trust and estate attorney who is knowledgeable and familiar with the appropriate statutory definition to ensure all interested parties agree. 

The UTC lists several matters that the NJSA may address, although jurisdictions are not entirely consistent on whether or not matters not listed may be resolved using the NJSA. Generally, statutes allowing the use of the NJSA do not require court approval, although obtaining court approval would certainly prevent future disagreements on the matter.

If the use of a NJSA is not a viable option, the UTC states also allow modification of a noncharitable trust by consent of the parties. The comments to the UTC, reference relevant statutes, and one state court decision prohibit the removal of a trustee by consent, although the consent may be used to address other areas of contention between the beneficiary and trustee. Interestingly, even if the modification by consent violates a material purpose of the trust, if agreed upon by the grantor and all beneficiaries, it’s allowable. Some states require court approval, others do not. Modification by consent usually requires the consent of the grantor.

A well designed estate plan, designed, drafted, and implemented by a competent estate planning attorney, should include specific provisions that provide flexibility to modify a trust and evolve with changes in future circumstances. However, even if the existing plan lacks specific provisions regarding the removal of a trustee, beneficiaries have options worth exploring, based upon case and statutory law in the jurisdiction which controls the interpretation and administration of the trust. 

Whenever trust beneficiaries are considering the removal and replacement of an individual or corporate trustee, it is wise to engage a competent estate planning attorney to provide guidance and legal advice to help the beneficiaries navigate through this process.