As a family trust moves into its second or third generation, it’s almost inevitable that someone’s going to be unhappy with the trustee. The good news is that most well-drafted trust agreements include a mechanism for replacing trustees as and when needed.
Now the bad news: in the absence of good drafting trust beneficiaries may have to sue for the removal of their trustee. In the past the only grounds for that kind of suit was a showing of some kind of malfeasance or negligence. This type of litigation is fraught with uncertainty and usually very expensive to pursue. Fortunately for Florida trust beneficiaries, as of 2007 we’ve adopted § 706(b)(4) of the Uniform Trust Code, which is the UTC’s “no fault” trustee removal provision. This UTC provision is incorporated into our trust code at F.S. 736.0706(2)(d), and it empowers a court to remove a trustee without cause if:
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 cotrustee or successor trustee is available.
Here’s the official commentary to the UTC provision, explaining the rule’s underlying rationale:
It has traditionally been more difficult to remove a trustee named by the settlor than a trustee named by the court, particularly if the settlor at the time of the appointment was aware of the trustee’s failings. . . . Because of the discretion normally granted to a trustee, the settlor’s confidence in the judgment of the particular person whom the settlor selected to act as trustee is entitled to considerable weight. This deference to the settlor’s choice can weaken or dissolve if a substantial change in the trustee’s circumstances occurs. To honor a settlor’s reasonable expectations, subsection (b)(4) lists a substantial change of circumstances as a possible basis for removal of the trustee. Changed circumstances justifying removal of a trustee might include a substantial change in the character of the service or location of the trustee. A corporate reorganization of an institutional trustee is not itself a change of circumstances if it does not affect the service provided the individual trust account. Before removing a trustee on account of changed circumstances, the court must also conclude that removal is not inconsistent with a material purpose of the trust, that it will best serve the interests of the beneficiaries, and that a suitable cotrustee or successor trustee is available.
To date we haven’t had a Florida appellate decision discussing F.S. 736.0706(2)(d). So if you’re involved in a case seeking to apply this statute, for now all you can do is look to rulings from sister states that have also adopted the UTC’s “no fault” approach. Which brings me to In re Jane McKinney Descendants’ Trust, a 26-page scholarly, well written and thoughtful Pennsylvania appellate opinion that’s received a good amount of national attention and is a “must read” for trust lawyers working in UTC jurisdictions (like Florida). Here’s an excerpt from a recent Barron’s piece entitled Dumping a Trustee reporting on the case:
Choosing a trustee is hard — but getting rid of one is harder. Beneficiaries who choose to switch trustees can find the process costly, drawn out, and unpleasant. But it may be getting a bit easier. Last year, the Superior Court of Pennsylvania ruled that Jane McKinney, the beneficiary of her parents’ trusts, was allowed to switch trustees from PNC Bank — the trustee after a series of bank mergers — to SunTrust Delaware Trust, which was geographically closer to her home.
The case was important because the court didn’t require McKinney to show any cause, such as negligence or bias in its dealings, issues that historically would have been required in forcing a trustee to step aside. Instead, the court ruled that “a string of mergers over several years, resulting in the loss of trusted bank personnel, coupled with the movement of a family from Pennsylvania to Virginia, constitutes a substantial change in circumstances.” While trust law varies state by state, the lower hurdle is now permitted in certain states that have adopted the Uniform Trust Code’s “no fault” trustee removal provisions. “This is a very, very interesting case,” says Nancy Fax, the managing partner at Pasternak & Fidis in Bethesda, Md. “I think this will make it easier to remove and replace trustees.”
Although the UTC’s no-fault approach is a vast improvement over traditional trust law, it does impose one very significant hurdle: unanimous consent by all of the trust’s beneficiaries. As reported in the Barron’s piece, this may be a lot harder than you’d expect:
It’s especially problematic, if all (or a majority) of a trust’s multiple beneficiaries need to sign off on a change of trustee. A pending Washington, D.C., case revolves around the Tompkins family trust; some of its 94 beneficiaries want to switch trustees. While the Tompkins case may be extreme, getting agreement even among four children after the parents have died may prove difficult enough. “We’ve seen removal delayed because the beneficiaries cannot agree,” says Magill. “It forces shared decision-making that isn’t suited to the circumstances.”
Good drafting pays off; include easy-to-execute provisions for removing trustees in all of your trust agreements.