Irrevocable and revocable trusts are estate planning instruments that can offer grantors confidentiality, probate avoidance and massive tax advantages for as long as the trustee chosen performs his/her job well.
Most settlors do their homework before appointing a fiduciary to manage their assets for designated beneficiaries. But regardless of how hard one works to make the right choice, there’s always a chance that the trustee selected may require removal one day.
Sometimes the person will exploit his/her fiduciary position by not taking the job seriously or by breaching one of the many legal duties that accompany the appointment.
The law also requires trustees to communicate well with beneficiaries, which may be difficult when the assigned fiduciary is a sibling or a spouse who has been in a rivalry with trust beneficiaries for many years prior.
If a trust agreement names you as a principal or if you hold a remainder interest in a trust, you can bring trustee removal proceedings whenever you find evidence indicating your fiduciary has committed a crime or has negligently performed his/her job.
Iowa fiduciary removal attorneys can likewise help you select the correct grounds for dismissing and replacing your trustee and can guide you through the process while your equity action (non-jury proceeding) moves forward.
Trust Agreement Vocabulary
- Settlor/Grantor. The individual who drafts and executes a trust agreement that transfers his/her assets and property titles to an appointed trustee who administers the trust for the benefit of beneficiaries after the settlor passes away.
- Beneficiaries. Named individuals or remainder recipients (individuals whose interests vest sometime in the future) for whom the settlor creates the trust.
- Trustee. A person or entity that holds the utmost legal obligations to manage the trust in the best interest of the beneficiaries.
- Co-Trustees and Successor Trustees. Fiduciaries who administer the trust jointly and/or take over the duties of another fiduciary when he/she resigns, passes away, or is discharged by the courts.
- Irrevocable Trust. A trust agreement that immediately transfers the settlor’s ownership rights in trust assets to the trustee.
- Revocable Living Trust. A trust document that allows a grantor to modify, amend or terminate the agreement at will while he/she is alive, but becomes an irrevocable trust upon the settlor’s death.
- Family Trust. A trust agreement where the settlor, trustee, and beneficiaries are blood related.
The Power to Remove Fiduciaries
Your trust agreement most likely mentions which individuals may remove the trustee and which conditions will call for fiduciary dismissal. The document may further explain the procedure you must follow for replacing the trustee as well.
If your agreement however is silent on the issue, Iowa Trust Code 633A.4107 will stand in for the missing language—empowering the courts to discharge and replace trustees when:
- the fiduciary commits a material breach of the trust;
- a trustee is unfit to perform his/her job;
- a trustee’s investment performance is consistently and substantially substandard;
- fiduciary compensation is excessive;
- the trustee entity merges with another institution;
- the fiduciary’s place of business changes;
- an interested party shows good cause; or
- hostility exists among co-trustees or when lack of cooperation harms the trust management.
The Code further expressly allows settlors (in a revocable living trust), primary beneficiaries, co-trustees and remainder recipients to bring fiduciary removal action when circumstances justify dismissal.
Removal or Termination by the Settlor
Living trust agreements usually allow grantors to remove trustees, successor fiduciaries, and co-trustees freely. Settlors further do not need a reason to change trustees or eliminate the fiduciary position, and they can readily perform such tasks by simply attaching amendments to the original trust agreement.
Grantors who draft irrevocable trusts on the other hand cannot remove fiduciaries or modify the terms of the agreement at will because they lose ownership titles of their property immediately after executing the document. Settlors therefore must bring trustee removal action with good cause to have trustees in an irrevocable trust ousted and replaced.
Removal by Beneficiaries and Remainder Recipients
Trust agreements similarly disclose whether beneficiaries are authorized to dismiss and replace trustees. If so, the majority of primary beneficiaries will often have to concede to fiduciary removal, and the dismissal must be made in good cause.
If the agreement is silent on removal or if the person seeking trustee removal is an unintended third-party beneficiary, he/she will need to bring legal action to have the fiduciary dismissed.
Co-Trustee Removal
Sometimes conflicts between co-fiduciaries arise and one trustee will seek the other’s dismissal. Grantors of a living trust can easily resolve this controversy because they have the power to change the trust agreement immediately.
Things become more complicated when co-trustees in an irrevocable trust fail to work together. Many times, beneficiaries will choose sides and will fight amongst each other when deciding which trustee deserves a dismissal.
The courts likewise refrain from ruling against the wishes of beneficiaries who bring trustee removal proceedings, but when parties can’t decide which fiduciary must go, a judge will make the decision for them.
Trustee Removal Proceedings
If you’re a settlor, co-trustee or beneficiary, an estate and trust dispute attorney can assist you in dismissing and replacing your fiduciary for good cause.
Your probate lawyer will file the equity action for you and will help you locate sufficient evidence that shows the fiduciary either violated the trust agreement or breached a legal obligation owed to you.
Trustee removal proceedings however can become complex to resolve when the fiduciary is also a beneficiary or when the person seeking removal is a remainder recipient, since he/she does not hold a present interest in the trust.
Add in the many depositions taken, records subpoenaed, and pretrial hearings for production of estate accountings, and what you’ll have is an elaborate process that can take a while to resolve.
You should further note that the courts may allow trustees to use trust assets to defend against dismissal, meaning if you’re a primary beneficiary, you may have to sacrifice your income held in equity to remove the trustee.
Conclusion
You definitely must discharge and replace your trustee if you discover he/she has:
- a conflict of interest;
- violated the trust agreement;
- intentionally or negligently mismanaged trust property
- committed fraud or embezzlement;
- charged you excessive fees; or
- engaged in self-dealing (used trust assets for his/her own interests).
Lastly, you must act quickly—the Iowa statute of limitations from removing a trustee runs three years from the date you knew, or should have known, of the fiduciary duty breach—the courts accordingly will reject your lawsuit if it’s filed outside the statute.
For these reasons and more, consult with an estate and trust dispute attorney today if your fiduciary requires removal.