Trustees play a vital role in the management and direction of revocable trusts. However, sometimes trustees need to be removed and replaced. While some trusts can be easily amended to change trustees, other circumstances may require a petition to be filed in court before a trustee can be removed from power. Here’s what you should know about how to change the trustee on a revocable trust. Advice from a financial advisor or estate planning attorney is also highly recommended when dealing with these potentially complex matters.
What Is a Revocable Trust?
A revocable trust, often referred to as a living trust, is a legal entity that holds assets during a person’s lifetime. It carries the advantage of being alterable or revocable at any given time. This provides the grantor – the individual who creates the trust – full control over their assets while ensuring they are distributed according to their preferred terms after their death.
The Role of a Trustee
While responsibilities might vary depending on the terms of the trust, trustees can be responsible for asset management, tax filing, distribution of assets and frequent communication with beneficiaries. For instance, in the realm of asset management, a trustee might be tasked with making investment decisions or selling property. When it comes to tax filing, duties could involve preparing and filing the trust’s annual tax returns. The trustee generally ensures that the terms of the trust are adhered to and attempts to manage the assets effectively for the beneficiaries and according to the grantor’s wishes.
Common Legal Grounds for Removing a Trustee
Trustee removal can be a serious but sometimes necessary action. In some cases, the reason for removal may be straightforward. If the trustee has died or has become incapacitated, they’ll obviously need to be replaced. Or perhaps the trustee no longer has the time or energy to devote to their duties and asks to be replaced.
Other circumstances, however, may be more complicated. A trustee will need to be removed if they’ve violated their fiduciary duty by personally profiting from trust assets, mismanaging funds or neglecting to provide annual reports.
For example, if there is substantial proof of a trustee depleting trust funds for their personal gain, it is deemed a breach of fiduciary duty and a valid reason for removal. However, there can also be conditions and limitations that could apply, such as needing court approval and valid justification for the removal.
Ways to Remove a Trustee
The trust itself should include language detailing how and by whom a trustee can be removed. Depending on the terms of the trust agreement, a trustee can potentially be removed by the grantor of the trust, a co-trustee or a beneficiary. However, some removals – including allegations of misconduct or breach of fiduciary duty – may require a petition in probate court.
- Removal by the grantor: In most cases, the grantor or creator the trust will retain the ability to remove and replace the trustee, provided the trust includes language that explicitly allows for these changes. The grantor can also revoke the trust, and in effect, remove the trustee from a position of power.
- Removal by a co-trustee: If a trust has more than one person managing it, one of the trustees may remove or replace another. However, a co-trustee may have to petition the probate court to follow through on this removal.
- Removal by a beneficiary: Beneficiaries can also seek to remove a trustee if the trust agreement includes a provision that allows it. This may happen if the trustee is unresponsive or hostile to beneficiaries. But like co-trustees, beneficiaries may need to go to court to get a trustee removed.
How to Petition the Court for Removal
If the circumstances surrounding the trustee’s removal require court approval, the process usually starts by gathering evidence of the trustee’s misconduct or incapability to effectively manage the trust’s assets. This evidence can include financial records, communications with the trustee and testimony from relevant individuals. The evidence forms the basis of a petition that’s submitted to the court for consideration.
The court then schedules a hearing, where the validity of the allegations will be assessed. During this period, the trust’s operations may be stalled or placed under a temporary trustee. Outcomes may range from the removal of the trustee and the appointment of a new trustee to the petition being denied outright.
Keep in mind that this process can be lengthy and expensive. The trustee may even be entitled to use trust funds to defend themself in court. Missteps or lack of knowledge can potentially result in protracted legal disputes, mismanagement of trust assets or disregard for the grantor’s wishes. It’s paramount that all the players involved, from trustors, co-trustees to beneficiaries, familiarize themselves with the nuances of the process and the conditions that could validate a trustee’s removal.
Employing revocable trusts remains a viable strategy for effective estate management and ensuring seamless asset transfer to intended beneficiaries. Trustees hold a pivotal role in this whole process, but there may be circumstances that call for their removal. Knowing how to proficiently handle this process, and when to seek legal or financial advisor’s advice, can help prevent complications and ensure the grantor’s intentions are fulfilled.
Estate Planning Tips
- A financial advisor can help you organize your assets and build an estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re considering a trust as part of your estate plan, be sure to identify the entity that best suits your needs. Here’s a comprehensive guide to help you better understand the different trust variations and when they may make the most sense.
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