Removal of Trustees

Take-Away: Caution needs to be exercised before a petition to remove a trustee is filed with a probate court. Courts seem to be highly reluctant to remove a trustee, even in the face of an established technical breach of trust.

Background: The last few of years have been  ‘busy’ years in the Michigan Court of Appeals with respect to petitions to remove a trustee. A short summary of some of those cases follows. However, first, a summary of the relevant common law and the Michigan statute on the grounds for the removal of a trustee.

Common Law: The common law with regard to a court’s ability to remove a trustee is best summarized in Restatement (Third) of Trusts, Section 37. As a general rule it provides that a removal of trustee can take place under the terms of the trust instrument or according to some state statutes by agreement of all beneficiaries of the trust and the settlor of the trust. The courts are ‘all over the map’ though when it comes to what constitutes a breach of trust sufficient to remove the trustee. If there is a ‘common thread’ among those removal decisions, in some manner the trustee’s breach must have harmed the trust estate or caused injury to the trust beneficiaries. As a generalization, if the beneficiaries merely do not get along with the trustee, that discontent will be insufficient to remove the trustee without a showing ‘more’ then just their unhappiness with their trustee.

Named Trustee: At common law there are many court decisions that refuse to remove a trustee merely because the trustee was formally named in the trust instrument, the court attaching  a high level of significance to the fact that settlor’s presumed intent and desire (a material purpose?) exists when a named individual is selected to serve in that fiduciary capacity, thus often requiring an enhanced showing of fiduciary  mismanagement before the selected (named) trustee is removed.

Hostility: A frequent claim to remove a trustee was that the fiduciary was hostile towards the beneficiaries. Yet if the trustee  followed the standard to preserve the trust estate from loss or serious harm, e.g. acting conservatively towards the trust estate, while the beneficiary might feel aggrieved by such a conservative management approach, the courts often refused to remove the trustee merely for being overly cautious in administration or investment decisions.

Burden of Proof: The Michigan Trust Code does not specify the standard or proof required to remove a trustee. The Restatement (Third) of Trust,  references a ‘clear showing’ before a trustee can be removed by a court in equity.  About 10 years ago the Pennsylvania Supreme Court, which has adopted the Uniform Trust Code like Michigan, held that a high clear and convincing burden of proof is required in order to remove an acting trustee. In re McKinney, 67 A.3d 824 (2013).

Michigan Statute: The Michigan Trust Code contains a section that authorizes the removal of a trustee. [MCL 700.7706.] It provides that the settlor, a co-trustee, or a qualified trust beneficiary may request a probate court to remove a trustee, or a trustee may be removed on the probate court’s own initiative. The statute specifically provides:

(2) The court may remove a trustee if 1 or more of the following occur:

(a) The trustee commits a serious breach of trust.

(b) Lack of cooperation among co-trustees substantially impairs the administration of the trust.

(c) Because of unfitness, unwillingness or persistent failure of the trustee to administer the trust effectively, the court determines that the removal of the trustee best serves the purposes of the trust.

(d) There has been a substantial change in circumstances, the court finds that removal of the trustee best serves the interests of the trust beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable co-trustee or successor trustee is available.

Subjectivity: Thus, the removal of a trustee is very fact-specific and the standards for removal will often vary even among probate courts. A mere breach of trust is insufficient to justify a removal of a trustee- the breach must be serious. Accordingly, a high level of subjectivity and latitude is involved when words like serious breach, substantially impairs, or persistent failure to administer the trust effectively, are the standards used to remove a trustee. Comments to the Uniform Trust Code, on which MCL 700.7706 is based, suggest that unwillingness includes a refusal to act or a pattern of indifference to the needs of some or all of the trust beneficiaries. Or, the persistent failure to administer the trust effectively can include long-term mediocre performance, including investment performance.

Non-Mandatory: MCL 700.7706 is a non-mandatory provision of the Michigan Trust Code. Accordingly,  a settlor possesses the ability to impose his/her own guidelines on the removal of a trustee, e.g. only a removal for cause, or stress the importance the trustee’s selection, in effect limiting the court’s ability to remove the intentionally selected trustee by suggesting that the choice of trustee is one of the trust’s material purposes.

Recent Michigan Court of Appeals Cases: Some key principles taken from fairly recent Michigan appellate court decisions on a trustee’s removal follow:

1. MCL 700.7706 supersedes and replaces the common law bases for the removal of a trustee. In re Gerald L. Pollack Trust, 309 Mich. App 125 (2015).
2. A trustee was found to have breached the trust for self-dealing and a failure to timely file an accounting. The court noted that MCL 700.7706 does not mandate the removal of a trustee following a breach of trust, and it concluded that the remedy of denial of a trustee’s fee, without removal from office, was within the range of reasoned and principled outcomes. In re Estate of Poston, No. 331772, July 25, 2017.
3. On the advice of legal counsel, the trustee sued a beneficiary for conversion of the decedent’s assets. The trustee did not prevail on the merits in that lawsuit. The beneficiary then retaliated and filed a motion to remove the trustee. The court found that the conversion lawsuit involved conflicting evidence, and there was nothing in the trustee’s actions that indicated imprudence or an exercise of bad faith on the trustee’s part. Therefore, the probate judge did not abuse his discretion by refusing to remove the trustee. In re Thomas Rowe Stockton Trust, No. 332278, September 19, 2017.
4. A beneficiary who seeks the removal of a trustee must look to and identify specific grounds for removal under MCL 700.7706. In re Pearl Franzel Trust, No. 335447, March 20, 2018.
5. A removed trustee of a revocable trust filed a petition to be reinstated as its trustee along with the removal of the successor trustees. The court refused to do so;  it found the petition to be frivolous and it ordered the removed trustee to pay $10,000 to the successor trustees for the attorney’s fees they incurred in defending the removal petition. In re Mulloy Family Trust, No.342526, February 19, 2019.
6. A probate court possesses the power to remove and appoint trustees sua sponte. In re Edmund William Ross II Irrevocable Trust, Nos 349679 et al, September 16, 2021.
7. While a probate court may remove a trustee on its own initiative, it must nevertheless determine the grounds under MCL 700.7706(2) that are the bases for the removal and explain and rationalize the basis for the trustee’s removal. In re Beverly M. Howe Revocable Trust, No. 354458, May 27, 2021.
8. A petition to remove a trustee was rejected even when it was shown that the trustee had failed to file tax returns. The trust’s accountant testified that the failure to file the tax returns had caused no harm to the trust. The court held that since the petitioner had failed to articulate what the material purposes of the trust were, and how the trustee’s appointment had violated that material purposes, no reason existed to remove the trustee. In re Lowell H. Peterson Trust, No. 350490, January 21, 2021.

Conclusion: It appears that petitions to remove a trustee are frequently filed with probate courts across our state. It also appears that Michigan courts are reluctant to remove a trustee, even when there may be breach of trust, so long as that breach has not seriously harmed the trust estate or injured the trust beneficiaries. Disgruntled or aggrieved trust beneficiaries should think long and hard before they file a petition that seeks to remove a trustee, unless they are prepared to demonstrate by clear and convincing evidence that the breach was serious which caused the trust harm, or the trustee’s actions violated a material purpose of the trust.