If you are a beneficiary of a trust it means that you are entitled to benefit from the assets held by the trust. It also means you have a number of important rights as a beneficiary. If you are concerned about the manner in which the Trustee is administering the trust, you may be wondering if your rights include the ability to remove the Trustee. In this blog, we will discuss when and how a beneficiary may be able to remove a Trustee.
Reasons to Remove a Trustee
The overall job of a Trustee is to manage and invest trust assets while administering the trust using the terms created by the Settlor (the creator of the trust). Sometimes, however, a Trustee makes costly errors that may cause a beneficiary to question his/her ability to properly administer the trust. Other reasons why a beneficiary may wish to have a Trustee removed include:
- Failure 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.
- Mismanagement of 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 by the Trustee – 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.
Can a Beneficiary Remove a Trustee?
Identifying a legal basis for the removal of a Trustee is only step one. Next, you must decide if a beneficiary has the authority to effectuate the removal of the Trustee. The answer is often found in the trust agreement itself. The terms of a trust agreement may specifically grant authority to a beneficiary, a group of beneficiaries, an attorney, or other designated individual/group to remove the Trustee. Even if the authority to remove the Trustee was not explicitly given to the beneficiaries in the trust agreement, the beneficiaries may still be able to petition the court for the right to remove the Trustee. If petitioning a court is the only option it does not guarantee that the court will grant the removal; however, it provides a beneficiary the opportunity to argue for the Trustee’s removal.
Contact a Sacramento Living Trusts Attorney
Please download our FREE estate planning checklist. If you have additional questions or concerns about estate planning matters, contact us at the Northern California Center for Estate Planning & Elder Law to find out today by calling (916)-437-3500 or by filling out our online contact form.
Latest posts by Timothy P. Murphy (see all)
- Planning for Education Expenses - September 21, 2019
- Why Is Naming a Successor Trustee So Important? - September 19, 2019
- 529 Plans: Planning for Education with a Tax and Asset Protection Bonus - September 17, 2019