The grantor of a living trust often serves as trustee during his or her lifetime, appointing a successor trustee to step into that role when the grantor dies or becomes incapacitated. The grantor of a revocable trust is free to make changes, so if circumstances change and a trustee becomes unfit during the grantor’s lifetime, the fix is relatively simple. But, what happens if a trustee acts against the interests of beneficiaries or becomes unqualified after the grantor’s death?
New Jersey law provides a procedure for removing a trustee, as well as a specific list of reasons a court may remove a trustee.
Initiating Proceedings to Remove a Trustee
A beneficiary of a trust, or a co-trustee, may request that the court remove a trustee for cause. However, a petition from an interested party is not required. A court may remove a trustee on its own initiative if the criteria set forth in the statute are met.
Reasons for Removal of a Trustee
In order to remove a trustee, a New Jersey court must find that the trustee:
- Failed or refused to file an inventory, render an account, or give security after due notice of an order from the court requiring such action
- Neglected or refused to perform or obey any order or judgment of the court within the time fixe by the court, so long as due notice was provided and the order was within the court’s authority
- Embezzled, wasted, or misapplied any part of the estate the trustee was responsible for
- Abused the trust and confidence vested in him or her as trustee
- No longer resides or maintains an office within the state and neglects or refuses to proceed with his or her duties
- Is incapacitated for the transaction of business, or
- Is one of two or more trustees, and refuses to cooperate with the other fiduciary or fiduciaries in a manner that hinders effective administration
In New York, the standards are similar, but the statute is less specific, allowing more discretion to the court. The New York court can remove a trustee if:
- The trustee has violated or threatens to violate his trust
- The trustee is insolvent, or is facing imminent insolvency, or
- The court for any reason determines that he or she is unsuitable for the role
What Happens When a Trustee is Removed?
When the court removes a trustee for cause, the court may appoint a replacement trustee or trustees. The only standard governing the person or persons the court may appoint as trustee is that any appointee be a “fit person.”
When Should a Beneficiary Seek Removal of a Trustee?
The statute sets forth very specific reasons a court may order removal of a trustee. Family conflicts and beneficiary dissatisfaction with the trustee’s decisions are not among them, and personal disagreements will typically not be sufficient to secure removal of a trustee. Rather, the trustee must generally be failing or refusing to adequately attend to his or her duties, whether that means misappropriating funds or simply failing to fulfill key responsibilities.
In addition to the likelihood of success, a beneficiary or co-trustee considering petitioning the court to remove a trustee must weigh the costs of the proceeding against the costs of continuing with the present trustee. Although some actions or failures of action by the trustee clearly warrant removal proceedings, in comparison to the cost of a contested removal proceeding. Thus, it is important that ay interested party considering requesting removal of a trustee make an objective assessment of the costs and benefits, rather than making an emotion-driven decision.
An experienced estate litigation attorney can assist a beneficiary or co-trustee in assessing the actions of a trustee and weighing the pros and cons of initiating removal proceedings.