Trustee Removal Lawsuits: An Overview

How can a person remove a trustee of a trust? Depending on the language of the trust, there could be several ways. This blog post summarizes some of the options, and provides an overview of things to consider when a person wants to remove a trustee.

First, the terms of the trust itself may provide procedures for the removal of a trustee. Oftentimes, comprehensively-drafted trust instruments will contain specific procedures whereby beneficiaries or a beneficiary may remove a trustee. Those procedures could require a specific reason for the trustee removal (such as misconduct on the part of the trustee) or no reason at all. Additionally, the trust may provide that a certain number of beneficiaries need to consent to the removal (such as all of the beneficiaries, or a majority).

Furthermore, trusts may provide for a trust protector to remove the trustee (I wrote an earlier blog post on trust protectors, which can be accessed here). In brief, a trust protector is a third party who holds certain authority with respect to the terms of the trust, or the actions of a trustee (in this case, the authority to remove the trustee and potentially name his replacement). Estate planners are increasingly utilizing trust protectors in the trusts that they draft, so it’s likely that in the future we’ll see greater use of provisions granting trust protectors the authority to remove the trustee.

If the terms of a trust either don’t grant a beneficiary the legal authority to remove a trustee (or if the beneficiary is unable to avail himself of the authority granted, whether because he doesn’t have a sufficient majority of the beneficiaries in agreement with him, or otherwise), then a beneficiary can seek to utilize the provisions of state law to file a lawsuit to seek to remove the trustee. Virginia, like many states, has adopted, with some modifications, the Uniform Trust Code. The Uniform Trust Code spells out certain grounds upon which a trust beneficiary can seek the removal of a trustee. Those grounds include: (1) the trustee has committed a serious breach of trust, (2) lack of cooperation among co-trustees substantially impairs the administration of the trust, (3) because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best services the interest of the beneficiaries, or (4) there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable co-trustee or successor trustee is available. See Va. Code § 64.2-759.

In my experience, the most common reasons to seek to remove a trustee are due to the trustee’s theft or misuse or waste of trust assets, the trustee’s abuse (whether verbal or physical) of beneficiaries or a co-trustee, the trustee’s threats towards a beneficiary or co-trustee, and laziness or nonresponsiveness on the part of the trustee.

When a beneficiary files a lawsuit to remove a trustee, the beneficiary can seek the removal of the trustee via a motion for a preliminary injunction (whereby the court will remove the trustee near the outset of the filing of the lawsuit), as well as at the trial of the matter. It’s usually prudent for a beneficiary to seek the removal of the trustee via a preliminary injunction, especially if the removal of the trustee is the sole (or main) claim in the lawsuit. The upshot of a successful motion for preliminary injunction is that the beneficiary is able to significantly increase his leverage in the case, potentially save legal fees, and ensure that the trust assets are safeguarded. The standard for obtaining a preliminary injunction removing the trustee is higher than the standard for removing a trustee at trial, so beneficiaries should keep in mind that even if they are not successful in having the trustee removed pursuant to a preliminary injunction motion, they very well could still end up prevailing on their claim at trial, especially after more discovery has been conducted.

There are some reasons why a judge may occasionally not remove a trustee (whether pursuant to a motion for a preliminary injunction, or at trial) when the trustee has committed what appears to be clear misconduct. Some judges will refrain from removing a trustee in order to maintain a degree of “control” over the trustee, whereby the judge will order the trustee to remedy a wrong (such as put back money into the trust, or take some other action). By keeping the trustee acting as trustee (subject to the court’s orders), the judge maintains a greater degree of control over the trustee than the judge potentially could have by removing him as trustee. The judge also ensures that remedial trust-related transactions can be accomplished more quickly and easily (given that the trustee’s name is on the trust checking accounts, signature cards, etc.). Accordingly, the judge may limit the trustee’s powers, but permit him to remain as trustee.

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