Can a Trustee be Removed Due to Hostility?

 In Rampino Law Blog

CAN A TRUSTEE BE REMOVED DUE TO HOSTILITY?

What can be done if the beneficiaries of a trust want to discharge a trustee? The potential motivations for wanting to do so run the gamut from friction emanating from personality differences to criminal embezzlement of trust funds.  In cases where a trustee is serving under either a will which contains a trust (a “testamentary trust”) or a living trust, the procedures for removing a trustee are set forth in a well-drafted document but the reasons for doing so are fact based. [1] What if the beneficiaries’ reasons for wanting to jettison the trustee are based on hostility that pre-dated appointment of the trustee or that has developed during trust administration? What are the criteria for doing so? It depends to some extent on whether a state follows common law or has adopted the Uniform Trust Code.

THE COMMON LAW APPROACH

While some jurisdictions have adopted the principle that hostility between a trustee and a beneficiary is, without reservation, sufficient grounds for removal of the trustee [2] most jurisdictions take the view enunciated in the comment to Restatement of Trusts (Third) § 37(b) which states that “friction between the trustee and some of the beneficiaries (of a trust) is not a sufficient ground for removing the trustee unless it interferes with the proper administration of the trust.”[3] But when does such hostility actually justify removal of a trustee? What are the factors considered by a court confronted with the issue?

 Nature and Scope of Trustee’s Duties

Some courts have deemed the nature and extent of a trustee’s duties and powers to be an important consideration in deciding whether a trustee may be removed. Accordingly, where a trustee who has demonstrated hostility toward one or more beneficiaries is vested with discretionary powers that affect the rights of the beneficiaries, it has been held in a number of jurisdictions that removal is warranted whereas in cases in which the trustee’s duties were of a ministerial nature not potentially impactful on the rights of the beneficiaries, courts have declined to remove a trustee irrespective of a demonstration of hostility.[4]

Impact on Collaboration

In Dennis v. Rhode Island Hospital Trust National Bank, 571 F.Supp. 623 (1983), although the Court found no evidence of ill feeling emanating from the trustee, it proceeded to remove the trustee, stating that “(t)he circumstances are not likely to produce the cooperative effort of trustee and beneficiaries so essential to the smooth functioning of the trust and the satisfaction of the settlor’s intent. And in a case in which the hostility was between the fiduciaries and not the beneficiaries, trustee removal was effectuated, the court declaring that “where the acrimony between the trustees has reached the point where there is lack of cooperation between the fiduciaries, the court’s regard for the interest of the trust and the rights of the beneficiaries may mandate a change of trustees.” Petition of Humphrey Statter, 275 A2d 272 (R.I. 1971).

Origin of Hostility

There is a line of cases in which courts have assessed the origin of the hostility and have refused to remove a trustee who was determined not to be the source of the hostility.[5] On the other hand, where the evidence established that the trustee was partially or fully responsible for the acrimony with the beneficiaries, courts have found sufficient justification for jettisoning the trustee.[6]  In the unreported decision of Carrelles v. Carrellas (R.I. Super. Ct. No. 2002-0665) 2001 WL 34094252, wherein a successor trustee instructed the beneficiaries that they were not welcome at the wake of the original trustee, refused to allow them entry into a property to which they were entitled to enter and engineered the arrest of one of the beneficiaries for entering the property, the court held that the trustee’s appointment was invalid for other reasons but went on to say that even if it were valid, the trustee was subject to removal. In so holding, the court reasoned as follows:

A fiduciary is held to the highest standard of conduct and utmost good faith. Literally, the trustee must inspire “trust” and confidence in the beneficiaries, and never act in a fashion antagonistic to their interests. The demonstration by a trustee, of open, avowed hostility toward a beneficiary is alone sufficient grounds for the removal of a trustee.

Hostility Involving Less than All Trustees

When acrimony is between one of several trustees and a beneficiary, there is precedent for removal of that trustee due to the incumbency of other trustees who presumably are able to discharge trustee responsibilities without impacting the rights of the beneficiaries, but there is contra precedent in which at least one court has refused to remove the offending trustee who was not affected by the hostility. [7]

Hostility Coupled with Conflict of Interest

It has been held that hostility between a trustee and the beneficiaries is sufficient grounds for removal of the trustee where a trustee’s personal interests conflict with, or are antagonistic to the trustees’ duties under the terms of the trust. In re Estate of Stuchlik, 289 Neb. 673, 857 N.W.2d 57 (2014). In this case, the settlor left the bulk of his assets consisting of farm property in trust to his wife for life with remainder to their two sons, Kenneth and John. The wife and Kenneth were designated as trustees and also served as general partners of a partnership which managed the properties. In a suit by John seeking to remove his mother and Kenneth as trustees, John alleged that they entered the premises accompanied by a sheriff to “make sure there was no sort of altercation between the parties” without the knowledge and consent John, removed the propane tanks causing freezing and water damage and eventually sold the property at a diminished price. In remanding the case to the trial court for evidentiary findings, the Nebraska Supreme Court stated that Nebraska law states that a trustee must act impartially between two or more beneficiaries and that it violates a trustee’s duty of impartiality to administer a trust with personal favoritism or animosity toward a beneficiary. The Court observed that the actions of Margaret and Kenneth in their capacities as partners may be evidence as too a breach of their duty of impartiality.

 APPROACH UNDER UNIFORM TRUST CODE

Some commentators have suggested that the Uniform Trust Code (adopted in New England by Massachusetts and Maine) sanctions “no fault removal” of a trustee.[8] But is that truly the case?

The Massachusetts statutory provision that deals with removal of a trustee is codified in MGL, 203E §706 which provides:

Removal of a trustee

  • The settlor, a co-trustee or a beneficiary may request the court to remove a trustee or a trustee may be removed by the court on its own initiative.
  • The court may remove a trustee if:
    1. The trustee has committed a serious breach of trust;
    2. There is a lack of cooperation among co-trustees that 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 serves the interests 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. (emphasis supplied).
    5. Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order such appropriate relief under subsection (b) of section 1001 as may be necessary to protect the trust property or the interests of the beneficiaries.

 

A petition to remove a trustee under the Uniform Trust Code which is not based on the elements set forth in a, b or c would necessarily sound in d. This encompasses matters in which the petition is predicated on hostility. Thus, it is necessary in cases based on subsection d to demonstrate that the removal is not inconsistent with a “material purpose of the trust.” In The Matter of the Trust of Clarence Hildebrandt 53 Kan.App2d 368 (Kan.App.2017) 388 P3d 918 which involved a petition to remove a law firm as successor trustee notwithstanding that the law firm was designated as such in the trust instrument, the court held that the material purposes of the trust would not be frustrated by substituting the settlor’s niece for the law firm based on evidence adduced at the trial that the law firm was inserted in the trust document as successor trustee by a member of the firm who drafted the trust and did not originate with the settlor. So, on one level, this was tantamount to “no fault” removal in the sense that it was not alleged that the trustee failed to discharge its duties or was embroiled in a hostile relationship with the trustee. But it was still necessary to establish that removal of the trustee was consistent with the material purposes of the trust.

Conclusion

Under common law, the courts are reluctant to remove a trustee solely on the basis of hostility between the trustee and beneficiaries, at least where the hostility has not emanated entirely or partially from the actions of the trustee. Generally, a pre-requisite of removal is that the hostility interferes with the proper administration of the trust. In making that determination, the courts look to various factors, including the nature and scope of the trustee’s duties, the impact on the ability of the trustees and beneficiaries to collaborate or in the case of hostility between trustees, on their capacity to cooperate with each other. Other factors considered in deciding whether to remove a trustee are whether the hostility involves more than one co-trustee and whether the hostility is coupled with a conflict of interest on the part of the trustee who is the object of removal.

In applying the Uniform Trust Code, rather than focusing on the actions of the trustee and whether hostility exists, a court must determine whether dismissing the trustee is consistent with the material purposes of the trust.

 

[1] This article does not address the situation in which the creator (settlor) of the trust endeavors to remove his or her trustee. Generally, the settlor reserves that power in the instrument which creates the trust and can do so without cause and with legal impunity. Nor does it treat cases in which the rust empowers the beneficiaries to remove the trustee and lays out the grounds for doing so. Its scope is limited to judicial removal at the behest of the beneficiaries based on hostility.

[2] 63 ALR2d 523 §2; Also, see Carrellas v. Carrellas (R.I. Super. Court # 2002-0665) 2001 WL 3094252 wherein the court said that “the demonstration by a trustee of open, avowed hostility toward a beneficiary is alone sufficient grounds for the removal of a trustee.

[4] 63 ALR2d 523 §3

[5] Id, §4

[6] Id

 

[7] Id, §7

[8] See, for example, So You want to Remove Your Trustee published in Matters of Trust on March 30, 2017.

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