If you are fortunate enough to be the beneficiary of a trust, it means that you are entitled to benefit from the assets held by the trust. It also means that you are dependant on the Trustee of the trust to protect and grow those assets. The vast majority of the time this relationship works exactly as intended; however, there are times when it does not. As the beneficiary of a trust, can you do anything if the Trustee is not performing as he/she should? Can the Trustee be removed? The Indianapolis trust administration attorneys at Frank & Kraft explain when and how a Trustee might be removed as well as who has the power to remove a Trustee.
Why Might You Want to Remove a Trustee?
Unfortunately, not all Settlors give sufficient thought an consideration to who to appoint as the Trustee of the trust they create. Consequently, sometimes a Trustee really should be removed because he/she is making costly errors. Other times, concerns about how a Trustee is performing his/her duties are a bit more cynical in nature and may include concerns that the Trustee:
- Has failed 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.
- Has mismanaged 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.
- Is involved in self-dealing – 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.
- Has a 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.
Who Can Remove a Trustee?
Once you are sufficiently concerned that you want a Trustee removed, you must consider who has the legal authority to do so. To figure out the answer to that query you need to know what type of trust is involved and you need to review the terms of the trust itself.
Trusts are broadly divided into two categories – testamentary and living trusts. Testamentary trusts don’t activate until the death of the Settlor whereas a living trust activates during the Settlor’s lifetime. Living trusts are also divided into revocable and irrevocable living trusts. If the trust involved is a revocable trust, the Settlor always has the option to modify or revoke the trust. As such, the Settlor can remove and replace a Trustee if the trust is revocable. If the trust is irrevocable, the Settlor does not have the power to remove the Trustee. If the Settlor does not have the authority to remove a Trustee (or even if he/she does), who else might be able to remove the Trustee? The trust agreement itself may help answer that question. Sometimes, the terms 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.
Contact Indianapolis Trust Administration Attorneys
For more information, please join us for one of our FREE seminars. If you have specific questions or concerns related to removing a Trustee in Indiana, contact the experienced Indianapolis trust administration attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.