|Mark W. Williamson is a partner in the Boston law firm of Casner & Edwards. He is immediate past chair of the Probate Law Section Council.
When trust beneficiaries talk about their trustees, the discourse generally runs the gamut from aggrieved to disgruntled. Indeed, the fully gruntled beneficiary is a rare sight, akin to spotting piping plovers on Revere Beach or parking spaces on Newbury Street.
For fiduciary lawyers, such animosity comes as no surprise. Beneficiaries often harbor a justifiable resentment toward their fiduciaries, perceiving them as arrogant, difficult, unresponsive to constructive advice and possessed of exquisitely conservative investment philosophies.
Trustees, for their part, may find their beneficiaries to be unrealistic, ignorantly critical, greedy and prone to micromanagement where they have no business even having, much less expressing, an opinion. After all, a trustee might explain, trusts are created precisely because the settlors lack faith in their beneficiaries' maturity, financial acumen, taste in partners, spending habits and an encyclopedia of other shortcomings (real or imagined) from which the settlor believed the beneficiaries must be protected.
In light of the adversarial dynamic that energizes the quirky fiduciary/beneficiary interaction, it is not uncommon for a beneficiary to seek a lawyer to obtain a trustee's removal. How should the attorney respond? How can one rate one's chance of success?
Analyzing whether an alleged offence is sufficiently serious to warrant a trustee's removal requires a familiarity with the subject that many practitioners lack. The relevant criteria are not always intuitively obvious, and first impressions as to the viability of a removal action might be far afield from correct. A hip-shot analysis that seemed reasonable at first blush may require furious backpedaling later, when you have to explain to your client why their petition was denied.
Just as young physicians receive the exhortation "First, do no harm," lawyers should be counseled to "First, read the trust." Courts recognize the value and purpose of trusts, and are generally respectful of a settlor's right to create one to his or her own specifications. The trust may, and often does, contain provisions that eliminate the removal remedy as a practical option. For example, it is common for a trust to specifically indemnify the trustee for the legal fees arising from the trustee's defense against removal. Even where no indemnification clause is included in the trust, the court might grant such a request if the trustee has not acted in a sufficiently egregious manner.
Likewise, the trust might exculpate, or forgive in advance, certain actions that would otherwise be improper, and authorize other actions that would be seen as questionable. A trust might broaden the trustee's investment discretion, to allow the trust to hold close corporation stock or personal residential real estate, without regard to immediate returns. Other common clauses might explicitly permit a trustee to favor certain beneficiaries or groups of beneficiaries over others, or grant an exclusive discretion over distributions that a particular beneficiary might find odious. Even if such provisions run contrary to accepted fiduciary practice, the court will often honor them, especially if the trustee in question was appointed by the settlor. The rationale is that the settlor picked the trustee because, in the settlor's judgment, the trustee was the most likely person to understand and carry out the settlor's intent.
Criticism of the trustee can come in many forms: the trustee is not getting sufficient investment return, the trustee has committed a fiduciary breach by taking some improper action, the trustee isn't doing something that the trust or basic law requires to be done, the
trustee is hostile to the beneficiaries, or some unsavory combination of all of these.
After duly noting the client's particular litany of slights, the lawyer often must inform the client of an important, though counterintuitive concept: that such allegations, even if true, may not be sufficient grounds for removal. More than mere breach is required - more than an occasional failure to account, and certainly more than a difference in investment philosophy between the trustee and the beneficiary. What is needed are circumstances that would make the ongoing administration of the trust by the trustee virtually impossible. A fair rule of thumb is that, if there is a remedy to the trustee's misdeed that is less draconian than removal, such remedy is likely to suffice for the court, and removal may not be granted.
Hostility is often alleged as a basis for removal. Trustee hostility has the potential to poison the trustee/beneficiary relations to the point that proper administration becomes extremely difficult, if not wholly impossible.
The requisite level of animosity is rarely seen, however, and difficult to prove. Even if the atmosphere is truly toxic, you must determine whether the hostility emanates from the trustee. One often finds that the ill will actually flows upstream, as it were, from the beneficiary to the trustee. Beneficiary hostility toward a trustee is common in the best of times, and might even be assumed when a beneficiary intends to file a removal petition. For this reason, such bad feelings rarely suffice as grounds for removal. The courts have noted that if beneficiary hostility were all it took to have a trustee removed, trusts, as a practical concept, might cease to exist. The beneficiary could always fire the trustee by simply alleging hostility, giving the beneficiary the opportunity to shop for a trustee more to its liking - more liberal in its discretionary distributions, for example, or more likely to be willing to fund a beneficiary's questionable business schemes.
If the trustee is truly the hostile party, there still may be insufficient grounds for removal. The hostility must be of a type that interferes with the proper administration of the trust. For example, consider the trustee who has a truly loathsome beneficiary: the trustee has long since stopped communicating with the beneficiary except when absolutely necessary, and when they do speak, the trustee cannot hide his or her skin-crawling revulsion. The trust, for purposes of this hypothetical, requires that the beneficiary receive all of the current income, and the trustee is required to distribute 3 percent of the principal each year. As long as the trustee does what is required, any hostility the trustee may feel toward the beneficiary is essentially irrelevant.
If, instead, the trust provided that the income and principal distributions were at the sole and unfettered discretion of the trustee, with the precatory directive that the beneficiaries be "supported in reasonable comfort," then actionable hostility may really exist. In this situation, a trustee's feelings may interfere with his or her judgment as to what distributions would suffice to provide "reasonable comfort." Removal, in such circumstances, might be the only reasonable remedy.
Breaches of fiduciary duty also might or might not be enough to justify removal. For example, a failure to provide accountings for a number of years may constitute a breach, but if the beneficiary never asked for one, that breach is probably not a "removable" offence - especially if the trustee quickly cures the breach. But if the trustee steadfastly refuses to account, even in the face of reasonable beneficiary requests (or judicial orders, reasonableness notwithstanding), the trustee's services can be terminated.
If a trustee commingles the trustee's own funds with those of the trust, a serious breach has occurred. But if the trustee did so through naivetÈ or inexperience, and swiftly remedied the situation, it is questionable that a court would grant removal. On the other hand, if a trustee steals money from the trust, removal is almost certain, because the action would tend to tear the fragile fabric of trustee/beneficiary amity beyond any realistic hope for repair.
In light of these strongly fact-specific criteria for removal, it would be helpful to develop a few rules of thumb - and here they are:
• Not every breach justifies removal - the breach must have no remedy other than removal that would put the trust administration to rights, and
• Not every instance of hostility constitutes grounds for removal - the hostility must make impossible or highly impractical the proper administration of the trust.
What can the trustee learn from these rules of thumb? Treat your beneficiaries with respect, swiftly remedy or at least address (in writing, preferably) any breaches alleged by the beneficiaries, and keep your fiduciary actions and financial dealings as transparent to the beneficiaries as possible. You will be hard to oust.
What can the beneficiary learn from these rules of thumb? Interact with your trustee in a mature and responsible manner. Keep all written correspondence civil in tone. Clearly and unequivocally request, in writing, for whatever benefits or discretions to which you are entitled under the trust instrument. Chronicle any breaches and firmly but politely request whatever redress to which your attorney informs you are entitled. This way, there are really only a few possible outcomes - either: (1) the trustee will refuse to comply (making a stronger case for removal); (2) the trustee will acquiesce to your demands, which may eliminate the need for removal as an option: or (3) you can learn why your demands cannot reasonably be met, which can save the expense, aggravation and embarrassment of a fruitless trial.