You have just gone through a long and insightful process to get your affairs in order. You met with your financial advisor, accountant, insurance agent, and attorney. Part of this process included creating a living trust in your estate planning documents. The trust could be for a minor child until age 40 or maybe even for their lifetime, or a trust for your spouse. You named a trustee, more than one actually, because you needed an alternate trustee in case the first one you named in the document couldn’t or didn’t want to serve, either initially or later on.
But what if it turns out the trustee you named ends up not being the best choice?
If you are still alive and the trust document allows for amendment, you can change the trustee. But what if change might be warranted, but the document does not allow you to change it or you have died and can’t change it?
Should you have drafted your trust so that the trust beneficiary can change the trustee?
Let’s explore this.
You can give the beneficiary both the right to remove a trustee and the ability to name a successor. But what standard should govern removal – for any reason under the sun? For simple negligence? An innocent mistake? For malfeasance or gross negligence? Because they don’t get along with the trustee? The trustee is perceived by the beneficiary as being too ‘tight’ with the money?
Connecticut has a Statute (§45a-242) that is the default position if the document is silent. The Statute allows a probate court, upon request of a beneficiary, to remove a trustee if:
1 – the fiduciary becomes incapable of executing such fiduciary’s trust, neglects to perform the duties of such fiduciary’s trust, wastes the estate in such fiduciary’s charge, or fails to furnish any additional or substitute probate bond ordered by the court
2 – lack of cooperation among co-fiduciaries substantially impairs the administration of the estate
3 – because of unfitness, unwillingness or persistent failure of the fiduciary to administer the estate effectively, the court determines that removal of the fiduciary best serves the interests of the beneficiaries; or
4 – there has been a substantial change of circumstances or removal is requested by all of the beneficiaries, the court finds that removal of the fiduciary best serves the interests of all the beneficiaries and is not inconsistent with a material purpose of the governing instrument and a suitable co-fiduciary or successor fiduciary is available.
Items 1-3 are hard to argue with and set a fairly high bar. Maybe this is sufficient for you, but take a closer look at 4. This says if all the beneficiaries agree on removal, then the probate court will kick out the person you selected if the court determines it’s “in the interests of all the beneficiaries.”
What if all the beneficiaries think the trustee is too tight with the money or is charging too high a fee? Do you want the court or the beneficiaries second guessing your selection?
I suggest that you state in your trust document that if there is a removal, it must be for a pretty good reason, such as gross negligence, but certainly not if all the beneficiaries so request.
But removal is only half of the puzzle. If there is a removal, is there also going to be a replacement? Can the beneficiary name their maid of honor or best man? Isn’t this a bit like having the fox guard the hen house?
My suggestion is to limit your replacement trustee to a professional. There are attorneys and financial institutions who can serve in this capacity. The beneficiary can either stay with the devil they know (the trustee you named) or the professional trustee they name.
We serve as trustee for a number of Connecticut residents, as many of our clients desire our continued involvement of their family wealth as spelled out in their estate planning documents. We are also chosen as a means to prevent family tension and to protect families from the inattentiveness and bureaucracy of larger institutions.
It is not just enough to create a trust and to name a succession of trustees. Build in some flexibility so that removal is possible, but only for very good reasons. And if a successor needs to be named, limit who can be a successor to a professional trustee.