Troubling with a trustee can be handled in a legal manner
Trustees hold a significant amount of power over the administration of trusts in California, but they also have a fiduciary duty to the beneficiaries of the trust to act in their best interests at all times when gathering assets, paying creditors, and distributing assets to the beneficiaries. However, there are times when a trustee violates his or her fiduciary duty and needs to be removed from the trust. This article, and the next two parts, explain when a trustee can be removed from a trust in California.
When can You Remove a Trustee?
California Probate Code Section 15642 dictates when a trustee can be removed from a trust.
- When the Trustee has committed a breach of Trust,
- When the Trustee is insolvent or otherwise unfit to administer the Trust,
- When hostility or lack of cooperation among co-trustees impairs the administration of the Trust,
- When the Trustee fails or declines to act,
- When the Trustee’s compensation is excessive under the circumstances,
- When the Trustee is the same person who drafted the Trust document,
- When the Trustee lacks capacity,
- When the Trustee cannot resist fraud or undue influence, and
- For other good cause
When the Trustee has Committed a Breach of Trust
A trustee can commit a breach of trust in a number of different ways. You will find throughout this article and the next two parts that some reasons to remove a trustee overlap or can be argued on multiple fronts. A breach of trust between trustee and beneficiaries can include colluding with one or more beneficiaries to the detriment of the others, engaging in self-dealing, commingling assets of the trust with personal assets, negligent management of the trust, misappropriation of trust assets, or failing to administer a trust by its terms.
A breach of trust can also occur when a trustee engages with an agent to administer the trust and that agent commits a breach. This can include committing violations of the trust terms, delegating tasks to agents not authorized to act on behalf of the trust, or failing to review the agent’s performance.
When the Trustee is Insolvent or Otherwise Unfit to Administer the Trust
Another reason to remove a trustee is if the trustee becomes insolvent or unfit to administer the trust. The term “unfit” is fairly vague and can encompass many situations in which the trustee is unable to properly administer the trust. A trustee can be unfit if there are too many conflicts of interest, if the trustee lacks the capacity to properly manage the trust, the trustee becomes too old, the trustee engaged in unseemly dealings, or any other situation where it is no longer acceptable for the trustee to remain in charge of the trust.
When Hostility or Lack of Cooperation Impairs the Administration of the Trust
This situation arises when there are co-trustees to the trust who can not effectively co-manage the administration of the trust together. In order to rise to the level of trustee removal, you must be able to show that the level of hostility has impeded the current administration of the trust to the detriment of the beneficiaries. An example of this would be infighting amongst co-trustees that allows stock options for the trust to lapse or a property to go into arrears because of the lack of cooperation.
When the Trustee Fails or Declines to Act
A trustee must actually do his or her job as the trustee, fulfilling the obligations of the role and performing all necessary duties. This includes managing trust assets, paying creditors, and distributing assets when appropriate. When a trustee fails to perform his or her obligations in regard to the trust through either act or omission, the beneficiaries have cause to remove the trustee and replace him or her with someone who is willing to take on the duties of the role.
When the Trustee’s Compensation is Excessive
In most trust instruments, a trustee’s compensation is usually not specifically listed as a discrete amount. In most cases, the trustee’s compensation is merely said to be reasonable and can be interpreted in many different ways. Typically, a trustee’s compensation is based on the following factors:
- The value and character of the trust property and the risk and responsibility of administering the property;
- The time spent and the quality and character of the services provided by the trustee;
- The character and cost of services provided by others;
- The trustee’s skill and experience; and
- The results obtained
If the trustee’s compensation is far excessive given his or her efforts in these areas, the beneficiaries may have cause for removal.
When the Trustee is the Same Person Who Drafted the Trust Document
Under California law, the trustee can not be the same person who drafted the trust document, with very limited exception. This is to avoid conflicts of interest or writing in unconscionable terms into the trust instrument that would unfairly benefit the trustee. The exception to this is when the court finds it is consistent with the trust settlor’s intent and not a product of fraud or undue influence, or if the settlor and trustee are related by blood or marriage, or if the agreement is reviewed by an independent attorney.
When the Trustee Lacks Capacity
A trustee can be removed from the administration of a trust if he or she no longer possesses the mental capacity to do the work. This typically arises in cases in which the trustee is elderly or involved in an accident that impairs his or her mental abilities. Proving that the trustee has dementia or other mental impairments can get the trustee removed for lack of capacity.
When the Trustee can Not Resist Fraud or Undue Influence
If a trustee succumbs to fraud or undue influence that impacts the value or administration of the trust, it can be cause for removal. Fraud can include making negligent investments in fraudulent schemes or distributing assets on the basis of fraud. It can also include situations in which the trustee commits fraud with the assets of the trust to benefit himself. Undue influence can come from beneficiaries or outside parties to control the administration of the trust or gain access to assets held by the trustee.
Other Good Causes
The last provision in the California Probate Code for removing a trustee is a broad statement of “good cause.” This is a catchall provision that allows the beneficiaries of a trust to petition the court for the removal of a trustee for any other good reason that does not fall within the other provisions and which may amount to a fiduciary breach. This could include the trustee moving out of state, personal or professional issues, or any other reason that would lead the court to believe that the trustee could no longer manage the administration of the trust with the best interests of the beneficiaries at heart.