When to Fire a Trustee

Takeaways

• A trustee is a crucial position with significant responsibilities, and while they are chosen for their trustworthiness, they can be removed if they fail to uphold their duties.

• The authority to remove them may rest with the creator of the trust, the beneficiaries, or the court, depending on the trust’s structure and state law.

• Grounds for removal may involve negligence, financial mismanagement, or incapacity, among others.

• Replacing a trustee can be a complex and costly process. Proper initial selection and a clear succession plan are the best ways to ensure smooth trust administration.

Navigating the Trustee Relationship

Selecting a trustee is one of the most consequential decisions in estate planning. While the name itself implies “trust,” the role is far more than a gesture of friendship – it is a demanding legal position with significant oversight. Understanding the mechanics of this role, and how to change course if a relationship sours, is vital for any trust creator.

The power to remove a trustee may be outlined in your trust’s terms or by the default rules of state law. Beneficiaries, the court, or other people impacted by the actions of the trustee may also have this authority.

What Does a Trustee Do?

A trustee acts as the legal manager of the assets held within a trust. Their primary mandate is to follow the instructions you’ve left behind while adhering to state laws.

Their responsibilities may vary based on the type of trust, but common duties include the following:

• Financial administration: Paying trust-related bills, managing taxes, and keeping meticulous records
• Asset stewardship: Overseeing investments and protecting real estate or personal property
• Beneficiary relations: Distributing funds according to the trust’s terms and maintaining transparent communication with those receiving assets
• Neutrality: Balancing the often-competing needs of different multiple beneficiaries without showing favoritism
• Compensation management: Taking reasonable, legally compliant fees that do not unduly deplete the trust assets

Trustees must adhere to the trust’s terms to the greatest extent possible.

Because these tasks carry a fiduciary duty, the trustee is legally obligated to act in the best interest of the beneficiaries.

The Critical Transition: Trustee Role in Practice

The moment a trustee’s full duties begin often coincides with a period of grief – the death of the trust’s creator (known as a grantor). At this point, a revocable trust typically becomes irrevocable, meaning the original creator can no longer make changes. The trustee must then transition from a caretaker of assets to the primary executor of the grantor’s final wishes.

This transition highlights why selection is paramount. The person you choose must not only be financially savvy but also possess the emotional intelligence needed to navigate family dynamics.

They must be prepared to act as a fiduciary, which is a high legal standard that requires absolute loyalty, good faith, and honesty. This duty dictates that every investment decision, every communication, and every fee charged must be solely for the benefit of the trust’s beneficiaries.

The trustee’s ultimate goal is to ensure that all administrative and legal requirements are met so that the assets are distributed according to the terms of the trust. This distribution is often not a single event; it can involve managing funds for minors until they reach a certain age, distributing annual income, or selling the property to divide the proceeds.

A failure to execute this phase efficiently and fairly is a common trigger for beneficiary lawsuits and may necessitate a costly removal process. Therefore, clear communication and timely, detailed accountings are essential safeguards for the trustee and the beneficiaries alike. A professional trustee is often better equipped to manage this highly regulated distribution phase than a family member.

Who Can Replace a Trustee?

The authority to remove a trustee depends largely on the trust’s current status and the specific language used in the legal documents.

A trustee may generally be removed by any of the following:

• The creator of the trust (grantor): While alive and competent, the creator of a revocable trust can usually remove a trustee at will.
• The beneficiaries: After the grantor’s death, beneficiaries may seek removal if they can prove misconduct or neglect in court.
• Trust protectors: Many modern trusts include this third-party overseer (an independent person who monitors the trustee) who can fire and hire trustees without needing a judge’s approval.
• The court: If no other path exists, a judge can intervene to remove a trustee who has become incapacitated (unable to manage their affairs) or is acting in bad faith.

When Is It Time for Removal?

Removing a trustee is a serious step that can be costly and time-consuming. However, it may become necessary when a trustee’s actions (or lack thereof) threaten the integrity of the trust. Common grounds for removal may include:

• Negligence: Missing tax deadlines, failing to provide accountings, or ignoring beneficiary inquiries

• Financial mismanagement: Engaging in high-risk investments that contradict the trust’s goals or “self-dealing” (using trust assets for personal gain)

• Irreconcilable conflict: When hostility between a trustee and beneficiaries becomes so great that the trust can no longer function

• Incapacity: If the trustee suffers from health issues or cognitive decline that prevents them from making sound decisions

Keep in mind that even if a trustee is “trying their best,” a lack of competence that leads to financial loss may be legally sufficient for removal.

Trustees can also resign voluntarily if they feel they are unable to carry out their duties.

A beneficiary removing someone from this role typically must file a petition in probate court and present evidence that the trustee has failed to fulfill their responsibilities.

The Financial and Emotional Cost of Removal: Costs and Process

While necessary in cases of true misconduct, the legal process of forcing a trustee’s removal should be considered a last resort.

Attorney fees for litigation often range into the tens of thousands of dollars and may be paid from the trust assets or by the beneficiaries themselves. In addition, contested removal petitions can take months or even years to resolve, especially if the trustee fights the removal. This may delay necessary distributions and further strain beneficiary relationships.

Court proceedings, depositions, and public airing of grievances also may create significant stress for all parties involved. The impact can be damaging to family relationships as well as the memory of the grantor.

Before initiating a lawsuit, consider attempting mediation or request a formal accounting. This documentation may be sufficient to encourage a voluntary resignation.

The Importance of a Succession Strategy

The best way to avoid a legal battle is to prepare for one before it happens. A robust estate plan should always include the following:

• Named backup (successor) trustees: A clear “Plan B” and “Plan C” so that if a trustee resigns or is removed, a replacement is already identified

• Professional backups: Considering a corporate trustee (like a bank or trust company) to serve alongside a family member to provide professional expertise and neutrality

• Specific removal clauses: Clearly defining who has the power to remove a trustee and under what conditions

Maintaining an Agile Plan

Life is not static. The person who may have been the perfect choice for trustee five years ago may now be too busy, too distant, or no longer aligned with your family’s needs. Regularly reviewing your fiduciaries – at least every three to five years at a minimum – ensures that your legacy remains in the right hands.

Related Reading

• Durable Power of Attorney: A Key Estate Planning Document

• Living Trust vs. Irrevocable Trust: What’s the Difference?

• Probate Process: A General Timeline

• Crummey Trust: A Safe Way to Give Financial Gifts to Minor Children