Every trust must have a Trustee, appointed by the Settlor (creator of the trust), whose job is to administer the trust. Beneficiaries of the trust count on the Trustee to responsibly manage the trust assets and adhere by the terms of the trust. What happens, however, if a Trustee fails to do their job well? What if you believe that a Trustee is mismanaging trust assets? Can a Trustee be removed and replaced? If so, who has the authority to have a Trustee removed and who will replace them? In an effort to shed some light on the subject, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain what beneficiaries need to know about removing and replacing a Trustee in California.
Why Might You Want to Remove a Trustee?
Unfortunately, it is not uncommon for a Settlor (also referred to as a “Grantor” or Trustor”) to properly consider the appointment of a Trustee when creating a trust which can lead to unintentional but costly mistakes. Sometimes a problematic Trustee is simply the result of the Trustee’s lack of experience or knowledge; however, problems with a Trustee can also be the result of intentional malfeasance on the part of the Trustee, such as:
- 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 comply with 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: 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.
- Conflicts of Interest: A conflict of interest can arise between the Trustee and the trust purpose, the trust terms, or the beneficiaries of the trust. If that occurs, it is usually best to remove the Trustee.
There is also a “catch-all” category used to petition for the removal of a Trustee that is referred to as “good cause.” This encompasses acts or omissions on the part of a Trustee 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 is convinced that doing so is necessary to preserve the trust assets and/or further the trust purpose as stated by the Settlor.
How Can a Trustee Be Fired and Who Replaces the Trustee?
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.
Once removed, the trust agreement may specifically name a successor Trustee or provide instructions for how to choose the replacement Trustee. If the trust agreement is silent, the court will appoint a new Trustee.
Do You Need Help Removing a Trustee in California?
For more information, please join us for an upcoming FREE seminar. If you need help removing and replacing a Trustee in California, contact the experienced Los Angeles trust administration attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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