When drafting an estate plan, it’s critical to select the right trustee to carry out your wishes and protect your beneficiaries. Equally important is the need to establish procedures for removing a trustee in the event that circumstances change.
Failing to do so doesn’t mean your beneficiaries will be stuck with an inadequate trustee. But it does mean that your beneficiaries will have to petition a court to remove the trustee for cause, which can be an expensive, time-consuming and uncertain process. In addition, courts generally are reluctant to remove a trustee who was hand-picked by the trust maker.
Reasons for removing a trustee
Grounds for removing a trustee vary according to state law, but may include any of the following:
- Conflicts of interest or lack of cooperation with beneficiaries;
- Insolvency or bankruptcy (if it would jeopardize trust administration);
- Mismanagement, fraud or other misconduct;
- Poor health; or
- Legal incapacity.
To avoid the need for court intervention and to make executing your estate easier on your beneficiaries, include procedures for removing a trustee in your trust agreement. You might allow beneficiaries to remove a trustee without cause if they’re dissatisfied with his or her performance. Or you might provide for removal of a trustee under specific circumstances defined in the trust agreement.
Provide a list of successor trustees
Your trust agreement also should include a list of successor trustees. If one trustee is removed, the next person on your list becomes the new trustee. Another option is to appoint a trust protector — a “super trustee” empowered to make certain decisions, including firing a trustee and appointing a new one. If you have questions regarding trustees, please contact me at SDitman@BerdonLLP.com or your Berdon advisor.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, New York Accountants, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.