A trustee can be removed from a trust for any number of reasons. In some cases, it may be necessary to change the terms of the trust or even to halt operations until a new trustee is appointed. This guide will explain how a trustee can be removed and the steps involved in doing so.
Check the Terms of the Trust Document.The trust document will outline any limitations on the powers held by the trustees or a third-party when it comes to making changes to the trust and who has the authority to act. This can include spelling out how a trustee can be removed and replaced with a new trustee. If explicit instructions aren’t given, you may need to gain permission from either a court or another trustee before making any significant changes like removal of a trustee.
Be Careful Not to Violate a No Contest Clause in the Trust or Will!One of the first and most important steps when considering removing a trustee from a trust is to make sure you are not in violation of any no contest clauses that may be included in the trust or will. A no contest clause states that an interested person such as a family member cannot challenge or object to certain provisions in the trust or will without risking forfeiture of their beneficiary interests. The trustee could claim that you are violating the no contest clause by seeking to remove them. So before proceeding, make sure that taking action won’t violate any no contest clause in the trust and put your inheritance at risk.
Determine Who Will Replace the TrusteeBefore you can remove the trustee, it’s important to determine how you will replace him. This should be done before the outgoing trustee is formally removed. This will ensure that your trust won’t lack necessary oversight during any transition period and the trust assets are handled appropriately. Depending on your trust agreement, you may need to appoint a specific individual or court permission may be necessary in order to name a new trustee.
Follow Procedure Outlined by the Trust Document or applicable State Statutes.The documents that create the trust probably dictate how a trustee can be removed. Generally, there are two ways to remove a trustee from a trusts: one agreed upon by all beneficiaries named in the document or by court order. Usually, if all parties agree on the removal of the trustee, this allows for an efficient and quick transaction. However, if some parties do not agree with the removal it may require going through court proceedings to have an official decision made. There might also be a Trust Protector who has authority to remove and replace a trustee.
Who May Remove a Trustee Under Arizona Law?According to A.R.S. Section 14-10706 , “The settlor, a cotrustee or a beneficiary may request the court to remove a trustee or a trustee may be removed by the court on its own initiative.” Also, under Arizona state law, a trustee may be removed upon the unanimous consent of all trust beneficiaries. If all beneficiaries are not capable of providing this consent due to age or incapacity, court intervention may be required in order for the removal process to take place. The court may remove a trustee if it finds that the trustee is unwilling or unable to act, has committed malfeasance, or is otherwise not acting in the best interests of trust beneficiaries. (We discuss the court’s ability to remove a trustee below.)
What Are the Standards for Removal of a Trustee in Arizona?A.R.S. Section 14-10706 outlines the circumstances under which a court can remove a trustee in Arizona. According to the statute, a court can remove a trustee if:
- The trustee has committed a serious breach of trust;
- The trustee is insolvent or has been judicially declared incompetent;
- The trustee has been convicted of a felony or a crime involving moral turpitude;
- The trustee has become incapable of performing the duties of the office due to physical or mental incapacity;
- The trustee has continuously failed to perform the duties of the office, and the failure has not been remedied after being requested to do so by the beneficiaries or co-trustees;
- The trustee’s removal is requested by all of the beneficiaries, and the court finds that removal would not be inconsistent with a material purpose of the trust; or
- The court finds other cause for removal.
What is a Serious Breach of Trust?A breach of trust, also known as a breach of a trustee’s fiduciary duties, refers to a situation where a trustee fails to perform his or her duties in accordance with the terms of the trust instrument or applicable law, resulting in harm to the trust beneficiaries. Some examples of a breach of trust include:
- Self-dealing: when a trustee engages in transactions that benefit themselves or their family members at the expense of the trust beneficiaries.
- Failure to diversify investments: when a trustee fails to diversify trust investments, resulting in losses to the trust beneficiaries.
- Mismanagement of assets: when a trustee fails to properly manage or protect trust assets, resulting in losses to the trust beneficiaries.
- Failure to distribute trust assets: when a trustee fails to distribute trust assets to the beneficiaries as required by the trust instrument or applicable law.
- Conflicts of interest: when a trustee places their personal interests above those of the trust beneficiaries or acts in a manner that is inconsistent with the terms of the trust.