As the beneficiary of a trust, you are entitled to benefit from the assets held by the trust. You must depend on the Trustee of the trust to protect and grow those assets. What happens if the Trustee is not doing his/her job properly? Can you do anything about a problematic Trustee? The Indianapolis trust administration attorneys at Frank & Kraft explain what a beneficiary can do about a problematic Trustee.
Problems with a Trustee
Sufficient consideration is not always given when deciding who to appoint as the Trustee of a trust. As a result, a Trustee might unintentionally make costly errors. Sometimes, however, a Trustee intentionally breaches his/her fiduciary duty. Common problems you might encounter with a Trustee 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.
- Trustee 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.
- 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 I Get the Trustee Replaced If I’m a Beneficiary?
Whether you have the legal authority to remove a Trustee depends on several factors, starting with the type of trust involved. Trusts are broadly divided into two categories – testamentary and living trusts. Testamentary trusts don’t activate until the death of the Settlor whereas living trust activate during the Settlor’s lifetime. Living trusts are also divided into revocable and irrevocable living trusts. As you might imagine, a revocable trust is typically easier to modify than an irrevocable trust. The trust agreement itself may also determine who can remove a Trustee. 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 a FREE seminars. If you have specific questions or concerns related to a problematic Trustee, 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.
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