Creating a revocable living trust is an important step in comprehensive estate planning. Typically, you will act as the trustee and ensure your assets are handled competently while still alive. Then, when you pass away, your designated successor trustee will manage and distribute the trust’s property.
When you appoint your successor trustee, you should choose someone you have complete faith in to handle the trust appropriately. However, your designated trustee may unexpectedly pass away or suffer a debilitating disease.
There is also the chance that the trustee clashes with your beneficiaries. Or a chance that over the years, they become irresponsible or sloppy. What can you or your loved ones do to terminate a bad trustee?
On what grounds can a trustee be removed?
While you are alive, as the creator, you can modify or terminate the trust as you please. This is the most straightforward process for terminating a trustee. However, once you have passed, the options become more limited.
As the grantor of a trust, you have the power to put provisions for removing a trustee in the trust document itself. For instance, you can include a clause allowing a majority or supermajority of the co-trustees or beneficiaries to remove a trustee.
These provisions can be tailored to limited circumstances or broad in their application. For example, you can include this provision only in case of the trustee’s death or incapacity. You could also allow different triggers for a termination vote, such as conflicts of interest or fighting with the beneficiaries.
Even if you do not write removal provisions into your trust document, they are a variety of grounds for terminating a trustee. However, someone with proper standing will need to petition the probate court to have the trustee removed.
Some state law grounds for removing a trustee include:
- Death or incapacity
- Conflict of interest with beneficiaries or trust property
- Ignoring or violating the terms of the trust
- Mismanaging trust property
- Engaging in fraud
- Charging excessive trustee fees
- Failing to provide beneficiaries with adequate notice or accounting
While the death of a trustee may be a straightforward reason for removal, the other grounds can be more challenging to prove. For example, no two people will have the same risk tolerance for investments. What the trustee may consider a prudent growth strategy, one of the beneficiaries may see as a speculative risk to their future wealth.
Who has the power to remove a trustee?
As mentioned above, the grantor can easily remove the trustee of a revocable trust. But once they have passed away, three different parties can have a trustee terminated. These are a co-trustee, one or more beneficiaries, or the court itself.
If you believe a trustee is acting wrongly or irresponsibly, your first step should be to review the trust instrument. Trustees have a duty to provide any beneficiary with a copy of the terms of the trust, and you should check the document to see whether it has provisions for removing a trustee through a vote.
But if you find that the trust agreement is silent regarding how to terminate a trustee, you will need to petition the court for removal. And, unless you are a co-trustee, beneficiary, or the guardian of a beneficiary, the probate court is unlikely to hear your petition.
How can a trustee defend themselves from removal?
Probate courts generally defer to trustees on conflicts between the trustee and beneficiaries. Often, the court will require the beneficiary to provide compelling evidence of wrongdoing before allowing a removal petition to advance beyond the initial stages.
Trustees also can use trust assets to fund their defense. While they cannot unreasonably draw down trust property to fight against a removal petition, a trustee who genuinely believes they did nothing wrong often will not need to spend their own money.
Some states do allow beneficiaries to recover damages from a trustee if wrongdoing is found. But this can take proof of gross misconduct, such as fraud or embezzlement. Unless a trustee is a convicted criminal, sanctioned by a regulatory body (such as the SEC), or declared bankruptcy, these are high burdens for a beneficiary to clear.
Be sure to talk to an experienced probate litigation attorney before starting any plan to terminate a trustee.
Have questions? We’re happy to discuss.
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Read More
Can Trustees Be Held Personally Liable?
The Trustee’s Guide to Trust Distributions
The Trustee’s Guide to Avoiding Trustee Removal
The Guide to Breach of Fiduciary Duty and Abuse
About RMO, LLP
RMO LLP provides personal and efficient inheritance dispute services to individual and institutional clients. The firm’s attorneys focus on probate litigation involving contested trust, estate, probate, and conservatorship matters. Serving California and Texas, with offices in Los Angeles, Pasadena, Orange County, San Diego, Fresno, the Bay Area, Dallas, and Houston. For more information, please visit https://rmolawyers.com/.
