Trusts are often set up by individuals to protect their loves ones from getting a gift payment outright. It could be that the creator of the trust (called a settlor or grantor in the law) wants the trustee to use his discretion in proving trust income or principal to the beneficiary when the trustee determines the beneficiary needs that money. The trust agreement usually gives the trustee a lot of discretion in making distributions to the beneficiary. The creator of the trust’s goal may be to improve the beneficiary’s life while at the same time protecting the beneficiary from spending the money unwisely. Consistent with that goal, the creator may choose a trustee that the beneficiary knows and respect, such as an older sibling.
However, despite the best intentions of the creator of the trust, if the trustee has been shown to become unworthy of acting as a fiduciary for the beneficiary or the relationship between the beneficiary and the trustee deteriorates such that the trustee cannot act as a professional fiduciary, the law provides a way to replace the trustee through a court action in the Circuit Court, Probate Division under two statutes. The first is RSA 564:9 which states that when, in the opinion of the judge, the trustee becomes incompetent, unsuitable, or has neglected or refused to comply with New Hampshire trust law, a beneficiary or co-trustee may request a replacement by a more suitable trustee and the court can consider:
- whether a change in trustee would be in keeping with the intent of the creator of the trust and when considering a replacement trustee;
- whether it would substantially improve or benefit the administration of the trust;
- the relationship between the creator of the trust and the trustee as it existed at the time the trust was created;
- the changes in the nature of the trustee since the creation of the trust;
- the relationship of the trustee with the beneficiaries;
- the responsiveness of the trustee to the beneficiaries;
- the experience and level and skill as a trustee;
- the investment performance of the trustee;
- the charges for services by the trustee;
- any other reasonable factors pertaining to the administration of the trust.
This statute would tend to support keeping a trustee in place unless there was proof of trustee: incompetence; or unwillingness to protect the beneficiary. However, under a Uniform Trust Code provision that is also part of New Hampshire law, RSA 564-B:7-706(b), the court may remove a trustee if:
- the trustee has committed a serious breach of trust;
- lack of cooperation among co-trustees substantially impairs the administration of the trust;
- because of unfitness, unwillingness, persistent failure of the trustee to administer the trust effectively, the court determine that the removal of the trustee best serves the interest of the beneficiaries; or
- there has been a substantial change in circumstances or removal has been requested by all the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with the material purpose of the trust, and a suitable co-trustee or successor trustee is available.
One would think that if any of the first three factors listed above were proven the court would also find removal was appropriate under RSA 564:9. Therefore, the most significant portion of that statute is the section which provides that the court may remove the trustee if there has been a substantial changes of circumstances or removal is requested by all the qualified beneficiaries if the court finds that removal of the trustee best serves the interest of all the beneficiaries and is not inconsistent with the material purpose of the trust, and a suitable co-trustee or successor trust is available. By way of example, if a widowed mother decided to leave her 20 year old son’s inheritance to him in a trust so that he receives portions of it for education or medical expenses at the discretion of the trustee and then outright distributions at ages 25, 30, and 35 respectively so that the entire trust will not be paid out until he reaches at 35, 15 years from then, the relationship between the trustee and beneficiary will be long standing. While the mother may have thought that the best trustee choice would be her oldest son, after she passed ill feelings between the beneficiary and his older sibling arise and while the trustee brother does not do anything overtly against the beneficiary brother, there is strong evidence that their estranged sibling relationship will negatively impact their trustee relationship. In such a circumstance, the court has discretion when the beneficiary brother requests the replacement or removal if judge finds it is not inconsistent with the material of the trust and a suitable successor trustee is available.
The successor trustee, depending on the size of the trust, could be what is called a corporate trustee being a bank or financial management company, which while charging a fee, may still be better in the beneficiary’s eyes than dealing with his estranged brother. While the estranged brother trustee may argue that the material purpose of the trust was to make him as the trustee and save institutional fees, it is quite possible that the court will find the material purpose of the trust was to establish a trustee / beneficiary relationship wherein the trustee acted professionally, managed the funds properly and disbursed in accordance with the express trust provisions and not that the material purpose of the trust was who was going to be the trustee. In other words, the creator of the trust chose a trustee to carry out the creator’s goals and did not create the trust to provide the trustee something to do in his spare time.
In addition to all the beneficiaries agreeing to removal of the trustee, there could also be substantial changes in circumstances such as a divorce, death, or other reasons that cause the estrangement of the trustee and a beneficiary where previously they got along well. With all this said, beneficiaries cannot remove a trustee merely because the trustee is not distributing trust monies to the beneficiary as requested, if the trustee is following the trust creator’s intent. Sometimes the whole reason for the trust creation is to not give the beneficiary the discretion to take money when he wants it and a trustee who is upholding the creator’s intent, but not unconsciously holding back money in part because of animosity the trustee feels towards the beneficiary, the trustee is doing his/her job.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].