If you are the beneficiary of a trust, or if you've seen a loved one set up a trust and then pass away, then you likely know what a “successor trustee” is. A successor trustee is the person or entity named to take over managing and administering the trust's assets when the original trustee (often the person who created the trust) is no longer able to do so.
Often, the original trustee selects their spouse or adult child to serve in this important role. However, they may instead choose a close friend, their unmarried partner, another relative or even a professional or corporate trustee.
While a professional or corporate trustee comes with added expenses, those options can help to reduce the risk of successor trustee “misbehavior.” Unfortunately, as most people opt for a family member or friend, there are times when a successor trustee can end up taking actions that are not aligned with the purpose they are meant to serve.
In this article, you will find useful information for dealing with a misbehaving successor trustee. You'll learn the common situations that can arise when a successor trustee is not acting in the best interests of the beneficiaries or taking other actions that go against the terms of the trust–or may even be considered illegal. You'll also discover ways to address this kind of situation, whether there is a trust protector in place or not. Finally, you'll find out some of the ins and outs of pursuing action against a bad actor successor trustee, and what can happen when you are successful.
What can go wrong with a successor trustee?
There are several common mistakes that a successor trustee can make, either intentionally or inadvertently. The following are a few to look out for when considering if a successor trustee may need to be removed:
Failing to satisfy the terms of the trust
One of the biggest errors a successor trustee can make is taking an action that goes against the express terms of the trust, or by failing to take action that the trust requires. If you are a beneficiary, then you have a right to receive a copy of the trust instrument. If you notice that the successor trustee is not complying with the trust instructions they're supposed to follow, then you may need to consider seeking their removal.
Mismanagement of trust assets
Another common mistake for a successor trustee is to improperly manage the trust assets. If the trustee is a family member who isn't financially savvy, this could be the result of simple ignorance or unintentional mismanagement. However, that doesn't mean that they should remain in place as successor trustee. It also isn't always the case that this kind of situation is inadvertent. A successor trustee can have expansive authority over a trust's assets, and with little oversight, they may be tempted to intentionally mishandle funds or property for self-serving reasons, which we will delve into further.
Neglecting trust assets
Along those same lines, neglecting trust assets is often a reason to seek removal of a successor trustee who is not serving effectively. This most often occurs when the original trustee passes away with their home held in trust. After their passing, the successor trustee is tasked with upkeep of the house as a trust asset. Whether it's because there are too many other tasks to handle or more straight forward shirking of duties because of the inconvenience, neglecting trust assets is never OK for a successor trustee.
Self-dealing or misappropriating funds
As mentioned, a successor trustee may mishandle trust funds intentionally for their own gain. Known as “self-dealing,” using trust assets to enrich or otherwise benefit the successor trustee is an obvious abuse of power. This could involve directly misappropriating funds, but it could also mean taking actions that are in the best interests of the successor trustee instead of for the beneficiaries, as should be the guiding principle for any action taken by the trustee.
Incapacitation of the successor trustee
Although incapacitation is almost always outside of the successor trustee's control, if they do become incapacitated, action will be needed to remove and replace them. Becoming incapacitated means that the successor trustee cannot make or communicate decisions, usually due to serious illness or injury, so this would make it impossible for them to complete trustee duties.
Breaching a fiduciary duty
A successor trustee is considered a “fiduciary” under the law. This means that they have certain duties that they are expected to undertake as part of their role. In this context, a successor trustee's primary duty is to act in the best interests of the trust beneficiaries. Many people mistakenly believe that the successor trustee owes a duty to the person who created the trust, who is usually the original trustee. However, their actual fiduciary duty is to the beneficiaries, who must rely on the successor trustee to take actions that benefit them and their interests. If they act in a way that contravenes the beneficiaries' interests, then the successor trustee may need to be removed.
What are some signs that a successor trustee is misbehaving?
It can be challenging as a beneficiary or other interested person to oversee the actions of a successor trustee to determine if they are misbehaving in one of the ways described. However, there are some signs that you could look for that might indicate that one or more of the problems highlighted above may be occurring in your situation.
The following are a few behaviors that could point to intentional or unintentional wrongdoing on the part of a successor trustee. You may need to take action to have the trustee removed if they:
Refuse to provide copies of the trust
If you are the beneficiary of a trust and the successor trustee refuses to send you a copy of the trust documents, it could mean they are not acting appropriately. The beneficiaries have a right to receive the trust instrument, so a refusal to provide it may indicate that they aren't following the terms of the trust currently.
Do not act according to the trust terms
If you do have a copy of the trust and notice that there's something the successor trustee has done that doesn't align with the terms, then that's a good reason to look into further misdeeds. Even if the action that contradicts the terms of the trust doesn't appear nefarious on its own, it could be a signal that the successor trustee is acting in bad faith or may be going against the trust terms in more substantial and detrimental ways.
Operate by their own rules
Similarly, if the successor trustee seems to be following their own rules and ignoring their duties or instructions in the trust, then that could be evidence of additional issues. Failing to take the role seriously could mean devastating consequences for the beneficiaries, especially if the assets are depleted through mismanagement, so it's important to investigate further if you suspect this is how a successor trustee is operating.
Fail to account for trust assets
One of the main duties of a successor trustee is to provide a periodic accounting of the trust assets to the beneficiaries. As a result, if your successor trustee fails to provide accountings, then that's a major red flag. These accountings are the main way that beneficiaries can review the status or changes of trust assets, so if you are not receiving them, you likely will want to inquire and take legal action if necessary.
Cannot act due to incapacity
As explained, incapacitation would absolutely mean that the successor trustee should be removed from this role. However, especially in the case of dementia or other mental failings, it may not be clear-cut whether or not the trustee would be considered legally incapacitated. If you notice the successor trustee acting strangely, showing forgetfulness or exhibiting other behaviors that make you question whether or not they have full capacity, then it likely would be useful to seek assistance with determining if they should continue serving.
Pocket trust assets
It may seem obvious, but if a successor trustee seems to be borrowing from the trust assets, spending more than they had in the past, or making large purchases that aren't usual for them, then it could be a sign that they are misbehaving. The trust accountings should provide greater insight or potential evidence of this kind of theft, but it's advisable to take action as soon as you suspect inappropriate behaviors to determine if they need to be removed immediately to protect the trust assets.
Do not communicate
Similar to failing to provide financial accountings, if a successor trustee is not communicating with the beneficiaries or other stakeholders, this may be a sign that they are not fulfilling their duties. While a failure to communicate for a short period of time may not be cause for concern, as life events can arise that make it challenging to stay in constant communication, a prolonged period of time or a failure to communicate without any explanation could be reason to delve deeper to ensure that no wrongdoing is occurring.
How difficult is it to remove a misbehaving successor trustee?
The answer to this question depends largely on the terms of the trust. If the person who set up the trust included a trust protector, which you can learn more about below, then the process is relatively simple. However, without a trust protector in place, the court will likely need to be involved.
Generally, if a beneficiary finds that a successor trustee is failing to uphold their duties, acting in ways that contravene the trust terms, or engaging in self-dealing or other inappropriate actions, then a court action will need to be filed. If there is more than one beneficiary, then all of the beneficiaries will need join together to seek removal of the successor trustee.
As with other legal actions, this usually means finding an experienced attorney to represent you in filing and pursuing your case. Once the petition has been filed with the probate court, then you and your attorney will need to present evidence of the successor trustee's misbehavior. The judge will hear arguments, consider evidence from both parties, and then decide whether or not the successor trustee should be removed.
It's important to note that if you do bring a legal action to remove the successor trustee, they may be able to use funds from the trust to cover the cost of legal representation. For this reason, working with an experienced attorney can help ensure that your case is solid and likely to result in removal before taking legal action and incurring those costs.
What do you need to prove for a court to remove a successor trustee?
While your attorney will be able to help you to determine the specific grounds for removal that apply in your case, one of the following generally must be proven in order for the court to find in your favor:
- The successor trustee was negligent, engaged in some sort of misconduct or breached any of their fiduciary duties. This includes self-dealing, issues with conflicts of interest, asset mismanagement or failing to make required distributions.
- The successor trustee didn't provide a full and accurate trust accounting as required by law or withheld important information from the beneficiaries.
- The trustee does not follow the terms of the trust, including adding or removing a beneficiary or making amendments that aren't aligned with the original trustee's intentions.
- The trustee becomes incapacitated and can no longer perform their duties as a result.
What if the trust has a trust protector? What if it does not?
A trust protector is a role that the person creating the trust can put into place to primarily oversee the actions of the trustee. When a trust protector is included, they usually also are given the power to remove the trustee if necessary.
Without a trust protector, there is no simple way to remove a misbehaving successor trustee. The beneficiaries in this situation must join together to take the legal steps above in order to remove a trustee, regardless of how egregious their inappropriate deeds.
If the trust does provide for a trust protector, then the process of removing a bad acting successor trustee is much easier. A court action is usually not needed, as the trust protector can usually act unilaterally to remove the successor trustee.
Generally, the trust protector is often provided with expansive authority to remove a trustee. The person who sets up the trust can provide specific circumstances in which the trust protector can remove and replace a successor trustee, or they can leave broad discretion for removal based on the trust protector's judgment. As a result, the circumstances and requirements for a trust protector to remove a successor trustee likely depend on the terms of the trust. However, even with the most restrictive terms, the process for removal will undoubtedly be much more efficient and less costly than a court action.
Does it make a difference if the trust is revocable or irrevocable?
In general, the kind of trust does not affect the process for removing a misbehaving a successor trustee. The successor trustee is held to the same standards regardless of whether the trust is revocable or irrevocable.
The main differences between revocable and irrevocable trusts in terms of the trustee relate primarily to the original trustee, not the successor. With a revocable trust, the person who creates the trust usually retains the right to remove and replace the trustee through a simple amendment. This is not generally the case with an irrevocable trust. However, even with a revocable trust, when the person who sets it up passes away, the process for removing a successor trustee typically follows the procedure outlined above.
Who bears the burden of proof and cost?
In an action to remove a successor trustee, the person or people bringing the lawsuit generally bear the burden of proof. This means that if you are the beneficiary of a trust where the successor trustee is acting inappropriately, you and the other beneficiaries will have to prove they are misbehaving and provide sufficient evidence. The trustee does not need to put on any evidence of their own; however, anyone who wishes to continue serving in this role will likely retain their own counsel to defend themselves and provide their own evidence.
Similarly, when you bring an action to remove a successor trustee, you and the other beneficiaries will bear the filing, legal and other costs. As mentioned, the successor trustee can utilize funds from the trust to defend the action. As a result, it's critical to work with an experienced attorney to ensure that the cost to you and to the trust will be worth moving forward with legal action before filing.
What happens if you are successful? Is a court always involved?
If you are successful in court, then the court will order the removal of the misbehaving successor trustee. Depending on the terms of the trust and other circumstances, it may name a replacement trustee as well. The probate judge may also award attorney fees and other costs to you if you are successful.
After you file a legal action against the successor trustee, it doesn't necessarily mean that the court will end up deciding the case. In some circumstances, you may be able to settle outside of court, especially in situations where the wrongdoing is obvious and the successor trustee is concerned about the high cost of being held personally liable for their actions.
Summary
Without a trust protector in place, it may not be a simple process to remove a misbehaving successor trustee. However, with the right legal representation, you can take action to protect your interests and the assets held in trust by having a bad acting or negligent successor trustee removed.