At one time, trusts were predominantly used by wealthy families as a vehicle by which the family wealth could be passed down without incurring a tax obligation on the transfer of wealth. The tax laws have since changed to prevent a trust being used in that way; however, trusts are now more popular than ever. In fact, it is becoming increasingly common to find a trust in the estate plan of the average person. Although there are numerous different specialty trusts that help accomplish a wide range of estate planning goals, all trusts have one thing in common – the need to appoint a Trustee to oversee the administration of the trust. What happens though, if the desire to remove the Trustee arises during the administration of the trust? Is it possible to remove or replace a Trustee during trust administration?
Who Can Remove a Trustee?
The short answer to the question is that yes, it is possible to remove or replace a Trustee during trust administration under certain circumstances. The first consideration is who has the power to remove a Trustee. The type of trust is involved and the terms of the trust itself dictate who has the authority to remove and/or replace a Trustee.
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 in a revocable trust, the Settlor always has the option to modify or revoke the trust. As such, the Settlor can remove a Trustee if the trust is revocable. If the trust is irrevocable, the Settlor does not have the power to remove the Trustee.
The Trustee also has the option to decline the appointment or resign his/her position after initially accepting the position. In addition, the beneficiaries of a trust may also have the authority to remove the Trustee if the Settlor gave them that authority when the trust was created. 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 approval to remove the Trustee. Finally, the trust agreement itself may grant a specific person, or group of people, the power to remove the Trustee if the Settlor wished to grant that power to someone other than the beneficiaries or to one specific beneficiary.
Why Can a Trustee Be Removed or Replaced?
Removing and/or replacing a Trustee is a significant task, and not one to be taken lightly because doing so will often disrupt the administration of the trust. Nevertheless, there are some reasons why you might want to remove a Trustee, including:
- Failing 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.
- Mismanaging 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.
- 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.
Contact an Illinois Trust Administration Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding the removal and/or replacement of a Trustee during trust administration, contact the experienced trust administration attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.
Dean R. Hedeker
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