It is not uncommon for tensions to develop between a trustee and trust beneficiaries. In such cases, trust beneficiaries may want to remove a trustee and appoint a different trustee. Some causes of beneficiary complaints include poor trustee communication, poor investment results, decisions about the distributions of trust income and principal, and the failure to report and account to trust beneficiaries, among others.
In removal proceedings, at one end of the spectrum is a trustee who prudently carries out its fiduciary duties with careful judgment and beneficiaries who are impatient and foolish. At the other end of the spectrum is a trustee who breaches its fiduciary duties to prudently administer the trust, allows the trust assets to diminish or engages in self-dealing. Cases involving either end of the spectrum are typically relatively simple for a court to decide. In the first example, a beneficiary’s petition to remove and replace the trustee is denied. In the second example, the trustee is removed (and, depending on the nature of its breaches, may be subject to far worse). In between the two ends of the spectrum are many cases which are much more challenging for a court to determine.
Before the promulgation and adoption of the Uniform Trust Code by a majority of the states, removing a trustee was largely a matter of a Court applying common law to a particular petition to remove a trustee. Typically, common law required some act of egregious conduct before removing a trustee. Now, in the absence of a provision in the trust instrument regarding trustee removal, the Uniform Trust Code provides a definite standard to use when a Court determines whether to remove a trustee when the Trustee has not breached its fiduciary duties (referred to as “No Fault Removal,” which we have previously looked at here). Uniform Trust Code Section 706(b)(4) provides that a court may remove a trustee if “ removal is requested by all of the qualified beneficiaries, and  the court finds that removal of the trustee best serves the interests of all of the beneficiaries and  is not inconsistent with a material purpose of the trust. . . .” The requirements in  and  are straight forward. The requirement in  that removal must not be inconsistent with a material purpose of the trust begs the question, “What is a material purpose of the trust?” The Kansas Court of Appeals recently weighed in on this question.
A finding of [a material] purpose generally requires some showing of a particular concern or objective on the part of the settlor.
In the case of In re Trust of Hildebrandt, the beneficiaries of a trust petitioned a Kansas court to remove a law firm which was serving as the trustee of the trust and replace the law firm with the beneficiary’s niece. The law firm trustee challenged its removal. On appeal to the Kansas Court of Appeals, the central issue was whether the appointment of the law firm as the trustee of the trust constituted a “material purpose” of the trust. The law firm argued that their appointment as trustee did, in fact, constitute a material purpose of the trust, while the trust beneficiaries argued that the appointment of the law firm did not constitute a material purpose of the trust.
In finding that the appointment of the law firm did not constitute a material purpose of the trust, the court cited the Restatement (Third) of Trusts: “A finding of [a material] purpose generally requires some showing of a particular concern or objective on the part of the settlor.” The law firm trustee argued that the concern and objective of the settlor in appointing the law firm a trustee was to ensure administration by an independent, third-party trustee (rather than a family member as the trust beneficiaries desired).
In looking at the specific language of the trust instrument, the Kansas Court of Appeals found nothing which expressly indicated why the settlor chose the law firm as the trustee. If anything, the evidence suggested that the idea of appointing the law firm as the trustee was not the settlor’s idea but was in fact the idea of the attorney in the law firm who drafted the instrument. Therefore, the court found that the law firm was unable to establish that its appointment as trustee constituted a material purpose of the trust, removed the law firm, and appointed the niece as trustee.
The Uniform Trust Code’s no fault removal statute gives trust beneficiaries more tools to seek the removal of a trustee and appointment of a new trustee. In no fault removals, it is critical to examine the specific language in the trust instrument in order to determine what the material purposes of the settlor were when he or she appointed a specific trustee. Specifically, it is necessary to determine whether the settlor had a particular concern or objective which led the settlor to appoint the trustee which the beneficiaries want to remove.