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“Removal of Trustees,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Travis Hayes, ACTEC Fellow from Naples, Florida. There are various methods for removing trustees from a trust. Today, we will learn more about when a court will remove a trustee, and what must be shown in order for a court to do so. ACTEC Fellow Jim Milton from Tulsa, Oklahoma is with us today to tell us more. Welcome, Jim.

Hello and thank you. So, removal of a trustee can take place under the terms of a trust instrument or by, under some statutes, by agreement of all the beneficiaries and the settlor of the trust. But, as indicated, we’re going to talk today about removal of a trustee for cause by a proper court –to use the phrasing from Restatement Third of Trusts Section 37. There are a number of types of causes for removal of a trustee, whether you look at the Uniform Trust Code (“UTC”), the Restatement Third of Trusts, or more generally the common law. By way of example, UTC Section 706 says that a court can remove a trustee for a serious breach of trust or if there are multiple trustees for lack of cooperation among co-trustees, substantially impairing the administration of the trust, or if the trustee becomes unfit, unwilling, or persistently failing in administration of the trust effectively. 

And that would also require the court to determine that removal of the trustee best serves the interest of the beneficiaries. Here, unfitness doesn’t necessarily mean a lack of capacity, it means that the trustee is simply the wrong person at that time. And then, the fourth item from UTC 706 is if there’s a substantial change of circumstances, or removal is requested by all of the qualified beneficiaries and the court finds the removal best serves the interest of the beneficiaries. You hear a lot there about the best interest of the beneficiaries, and also the circumstances of the case, and also whether the trustee is, well, doing a good job. 

Judicial Equity Hat

As a result of that, trustee removal is very fact-specific and the court standards for removal will vary even among UTC states, even among states that follow the Restatement Third of Trusts. There is a great deal of subjectivity, I remember many years ago in appearing before a judge in what was an equity case, the judge described himself as putting on his equity hat. And that’s what you’re going to find when you go in asking for removal of a trustee, a judge is going to put on his or her equity hat and remove only for the most serious and permanent of fiduciary shortcomings. 

That’s from a Massachusetts appeal and court decision in 1993. Other Massachusetts courts would say that there are some grounds that would be insufficient because they’re not showing enough harm or risk of harm to the beneficiaries, or enough improper disregard of the interest of the beneficiaries. For example, the Edinburg court in Massachusetts in 1986 said that the trustee would not be removed for failure to investigate a charge of forgery or some display of partiality to one of the beneficiaries. These are the types of things that might be alleged in attempting to remove a trustee, but, in some instances, it’s simply not enough. 

Hostility 

Hostility is one of the more common grounds raised for removal of a fiduciary, including trustees. But — is it hostility? — that’s what litigators will find if they go in to litigate hostility as a grounds for removal of a trustee. It could be that the trustee is being overly cautious. No trustee should be removed except on the strongest showing, with respect to the charges made and for purposes of protecting or preserving the trust estate from loss of serious harm. So, if the trustee is following that standard and handling the trust conservatively, a beneficiary might feel aggrieved. The beneficiary might feel that they are the subject of hostility, but it might simply be an over-cautious approach, which the courts will, in many cases, find acceptable. 

One thing that we see in trust litigators is an attempt to provoke hostility and active antagonism of the beneficiaries of an estate toward a fiduciary. It might be undesirable, but it would not be sufficient to compel the courts to order the trustee’s removal unless the hostility is provoked by the trustee and likely to jeopardize the estate. That’s from In re Mathues’ Estate, Pennsylvania, 1936. So, we’re seeing lots of old court decisions and lots of equity determinations regarding hostility. And the fact is hostility may naturally exist, a trustee is trying to follow the trust instrument and the beneficiary may want more. So, hostility between the trustee and the beneficiaries alone sometimes is simply insufficient to warrant removal.

Standard of Proof

If there is a technical error in administration of the trust, that probably is not going to be enough. The courts will follow the settlor’s intent, so if the settlor said, “XYZ company” or “John Doe” will serve as my trustee, the courts are more likely to support the trustee and to deny removal. So, there we get into the standard of proof. The Wyoming court in 2016, Wyoming Supreme Court, said that there is an enhanced showing required to justify a removal of a trustee appointed by the settlor herself.

So, if the trust instrument identifies the trustee, at least the Wyoming Supreme Court in 2016 would require an enhanced showing. The Oklahoma Supreme Court in 1961(Moore v. Cavett, 1961 OK 288, 368 P.2d 224, 230) says that only the strongest showing would be sufficient to justify a removal. But trial lawyers look at these phrases and try to gage, “Okay. Who has the burden? And what really is the burden of proof?” Well, the Texas appellate court, the Texas Court of Civil Appeals in 1986 (Novak v. Schellenberg, 718 S.W.2d 822 (Tex. App.—Corpus Christi 1986, no writ); Removal of trustee, 2 Tex. Prac. Guide Wills, Trusts and Est. Plan. § 5:423) aid that the burden of proof is on the party who seeks to remove a trustee for dereliction of duty. Well, okay, that answers some of the questions from our trial lawyers, but it doesn’t really tell us what is the standard of proof? What burden do I face when trying to remove a trustee.

Well, the restatement in some of the cases interpreting the Uniform Trust Code talks about a clear showing. Is that a clear and convincing standard? Professor Joanne Hindel in the Ohio Probate Law Journal in 2006 (Joanne Hindel et. al., Trustee Removal: From the Common (Law) to the Controversial, 16 OHPRLJ 67A) tried to reconcile all of these cases and suggested that a clear and convincing standard was emerging. The Pennsylvania Supreme Court in 2013 (In re McKinney, 67 A.3d 824) expressly adopted a clear and convincing standard. So, if a person is attempting to remove a trustee, it appears likely that they owe a clear and convincing standard to the court. That may mean that summary judgment might not be available, that may mean that you’re likely going to have a trial. 

Then, we get to one of the more interesting aspects of this. Remember the equity hat that I talked about? Even if you meet your standard of proof, even if you meet this clear and convincing standard for removal, for cause, the court still has that equity hat on. And the court may still deny your request to remove a trustee.

Thank you, Jim, for discussing issues relating to a removal of a trustee for cause by the court.

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