Ohio trusts-and-estates attorney Michael D. Bonasera reported here in his The Ohio Trust & Estate Blog on a NY Times article he spotted entitled: Breaking Up Is Hard to Do. According to the NY Times, trust beneficiaries are growing increasingly dissatisfied with their corporate trustees:
Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years, those experts say. Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.
Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint. “The longer a trust lasts, the more you’re going to have a change in trustee personnel,” said Richard Kahn, a partner in the law firm Day Pitney in Florham Park, N.J., who specializes in trusts and estate planning.
This is not the first time I’ve seen an article reporting on the drift away from traditional corporate trustees (see Trust in your bank?).
In my opinion if a trust is large enough to warrant professional management, appointing a corporate trustee is usually a good idea. However, the benefits of having a corporate trustee can be had without wedding your trust beneficiaries to a particular bank or trust company in perpetuity. The ability to fire a current corporate trustee and appoint another corporate trustee of their choosing would seem to address all of the trust-beneficiary grievances reported on in the NY Times piece. As pointed out in the article, the easiest and best way to address this issue is through proper trust-agreement drafting.
In the absence of a well-drafted trust agreement, trust beneficiaries traditionally could sue for the removal of their trustee only upon a showing of malfeasance. This type of litigation is fraught with uncertainty and usually very expensive for trust beneficiaries to pursue. The appeal of these cases drops even further when trust beneficiaries realize that although they have to pay their legal fees out of their own pockets, the trustee can use trust funds to pay its attorneys.
Fortunately for Florida trust beneficiaries, Florida’s new Trust Code provides an alternative. If all of the trust beneficiaries agree, they can obtain an order compelling a trustee to resign under the following statute, without having to prove the trustee was negligent in any way.
736.0706 Removal of trustee. . . .
(2) The court may remove a trustee if:
(d) . . . 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 cotrustee or successor trustee is available.
Although this statute is a vast improvement over traditional trust law with respect to the forced removal of unwanted trustees, it does impose one very significant requirement: a unanimous vote by all of the trust’s qualified beneficiaries. As reported in the NY Times article, this may not be an insubstantial hurdle:
Mr. Dinzeo of Accredited Investors has been working for the last five years with a family where the younger generation is unhappy with the big international bank that has been handling its trust, worth more than $100 million. Trust officers were rotating every 12 to 18 months, these beneficiaries complained. “They wanted to switch down to a smaller trust company, a local player that would have less of an institutional feel,” Mr. Dinzeo said.
“The other side of the family agreed that the service level wasn’t par,” he added, but they wanted to stay with the big bank. “They felt that this large institution would be there. There would be continuity from generation to generation.”
The result? The beneficiaries talk periodically with bank officials, and conditions improve for a while, but then matters slide again, Mr. Dinzeo said. “It’s a constant recurring discussion that just sucks out the family’s resources and time.”