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If a successor trustee fails to uphold duties, there are remedies available

by Legacy Plan
May 2, 2020

What happens when your carefully chosen successor trustee fails to adhere to the provisions of your carefully crafted trust or mistreats your beneficiaries? Can the successor trustee be removed? Can removal only be accomplished through a court order? These important questions are answered in the article below.

When you create a trust, one of the most important decisions you will need to make is selecting a successor trustee. Why is this decision so important? Because the selected individual or entity will be empowered to manage and supervise your trust when you pass away. In many instances, a grantor will create a revocable trust and act as trustee, but include a provision naming an individual or entity to succeed them when they pass away.

Unfortunately, there is an inherent risk when naming a successor trustee because they may decide to ignore or neglect key provisions of your trust.

Examples of situations where a successor trustee may need to be removed

It is worth noting that a successor trustee cannot be removed simply because they are not liked by your beneficiaries. There needs to be a specific basis for removal. Here are some examples of viable reasons for seeking removal of the successor trustee:

  • Failing to satisfy the terms of the trust
  • Mismanagement of trust assets
  • Neglecting trust assets
  • Self-dealing or misappropriating funds
  • Incapacitation of the successor trustee
  • Evidence that the successor trustee breached a fiduciary duty

Removing a misbehaving successor trustee

If the trust does not include a provision concerning a trust protector (more on that later), it is important to understand that your beneficiaries lack the power to have the successor trustee removed. Instead, a legal action would need to be initiated in a probate court. Specifically, the beneficiaries would need to file a formal petition with a court seeking removal of the successor trustee. Once the petition is filed, the probate court will hear the arguments of the beneficiaries for removal and decide whether removal is appropriate.

Viable Basis for Removing a Successor Trustee Not a Viable Basis for Removing a Successor Trustee
Breach of fiduciary duty One or more of the beneficiaries simply do not like the successor trustee
Mismanaging the funds in the trust One or more of the beneficiaires suspect mismanagement, but lack any evidence
Evidence of self-dealing by the trustee
Neglecting trust assets

In order to convince a court that removal of a successor trustee is appropriate, you need to submit persuasive and compelling evidence of the alleged misconduct or breach by the trustee. Collecting and compiling this evidence requires taking depositions, retaining expert witnesses such as accountants, subpoenaing documents, etc.

You also need to be aware that the successor trustee is allowed to utilize the funds in the trust to defend themselves. This is a big reason why it makes sense to speak to an experience trust and estate attorney if you are seriously contemplating removal of a successor trustee. You do not want to wind up in a lengthy legal battle since protracted litigation could actually do more harm than good.

Can a successor trustee be removed without getting the courts involved?

Yes, it is possible to avoid litigation entirely, if you take the time to properly draft your trust and include a “trust protector” provision. If your trust includes a protector provision, it means you will have someone with the legal authority to oversee the successor trustee and remove them if there is evidence of abuse or misconduct.

According to Forbes Magazine, when the concept of a trust protector entered the mainstream in the United States, the protector had a specific (and limited) role – remove the successor trustee if they are abusing their authority. However, as time went on, protectors were provided with additional powers and new authority, including the ability to appoint a new successor trustee if the original trustee is removed.

Can a protector name themselves as successor trustee?

This is an important question because, much like naming a successor trustee, there is an inherent risk associated with empowering a protector to both remove the current successor trustee and appoint a new trustee. A big risk is that the protector can simply appoint themselves as the new successor trustee.

However, this risk can be easily mitigated by including specific language in your trust that prohibits a protector from being named the successor trustee or appointing somebody who has allegiances to the protector.

Include a protector in your trust

The risk described above is far outweighed by the benefits associated with including a protector provision in your trust. In fact, it is tough the fathom a situation where it does not make sense to include a protector provision in the trust.

For example, the living trust (i.e. one of the most straightforward and popular forms of a trust most definitely benefit from the inclusion of a protector provision. For context, a living trust is one you create for your own benefit while you are living. When you create a living trust, you are the trustee and beneficiary.

The issues arise when you pass away and your successor trustee is suddenly empowered to manage a potentially large trust fund. If the successor trustee is not up to the job, or abuses their authority, your beneficiaries will have little recourse except to initiate contentious and expensive litigation against the successor trustee. Though, if you took the time to include a protector provision, then your beneficiaries have a viable remedy for a misbehaving successor trustee where that individual can be removed without having to get the courts involved.

Tips for selecting a trust protector

Much like your successor trustee, the individual selected to serv as trust protector should be someone that you trust and who is capable of handling the responsibility. If you are creating an irrevocable trust with the objective of protecting certain assets, the designated trust protector should not be “related or subordinate” to the individual who created the trust or of any of the beneficiaries. This is necessary to protect your assets from unnecessary taxation.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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Email - info@legacyassuranceplan.com
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