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George F. Bearup, J.D. Senior Legal Trust Advisor

8-Oct-18

The Power to Remove a Trustee

Take-Away: While over 31 states have adopted some variation of the Uniform Trust Code, including Michigan, by virtue of those variations, it is fair to say that there is very little uniformity when it comes to applying the Unifrom Trust Code. In particular, there is a divergence if trust beneficiaries can remove and replace existing trustees. Michigan’s Trust Code seems to permit more latitude than other states with regard to giving trust beneficiaries the power to remove and replace an existing trustee.

Background: The Uniform Trust Code (UTC) was adopted by the Uniform Law Commission in 2000 with the stated goal to standardize trust law throughout the US. Despite that goal, states have been free to modify the UTC’s model provisions when their version of the UTC was finally adopted. As a result, state-specific modifications to the UTC have led to conflicts among the states  with regard to certain uniform provisions, which in turn leads state courts to divergent interpretations of what were intended to be standard provisions of a uniform set of trust laws. An example of this divergence is the UTC’s provisions with regard to a trustee’s removal.

Michigan Trust Law: The Michigan Trust Code contains a few  provisions that address the removal of a trustee of a trust.

  • Probate Court Exclusive Jurisdiction: The probate court is given exclusive jurisdiction to appoint or remove a trustee. [MCL 700.1302(b)(i).]
  • Who May Seek Removal of Trustee: The settlor, a cotrustee, or a qualified trust beneficiary may request the probate court to remove a trustee, or a trustee may be removed by the probate court on its own initiative. [MCL 700.7706(1).]
  • Grounds for Removal of Trustee: The  probate court can remove a trustee if any one or more of the following occur- (a) the trustee commits a serious breach of trust; (b) the 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; and (d) there has been a substantial change of circumstances, from which the court finds the removal of the trustee best serves the interests of the trust beneficiaries and removal is not inconsistent with a material purpose of the trust and a suitable cotrustee or successor trustee is available. [MCL 700.7706(2).]  Note that a mere breach of trust is insufficient to warrant the removal of a trustee; the breach of trust must be serious to invoke the probate court’s trustee removal power. Similarly, the lack of cooperation is not between the trustee and trust beneficiaries, but only between co-trustees as the basis for the removal of an acting co-trustee.  Unwillingness is intended to include an act or pattern of indiffence to the needs of some or all of the trust beneficiaries. These specified causes for the removal of a trustee replace reasons identified for the removal of trustees at common law. In re Gerald L. Pollack Trust, 309 Mich App 125 (2015.)
  • Interim Protection: Pending a final decision by the probate court on a request to remove a trustee, the probate court may order other appropriate any relief that is necessary to protect the trust property or the interests of the trust beneficiaries. [MCL 700.7706(3).] The types of interim protection available when removing a trustee are spelled out in other sections of the Michigan Trust Code, e.g. to enjoin the trustee, to order the trustee to render an account, or to suspend the trustee. [MCL 700.7901(2).]
  • UTC: Michigan’s trustee removal provisions are based upon UTC Section 706.
  • Non-Mandatory Provision: MCL 700.7706 is a non-mandatory provision under the Michigan Trust Code. This means that a trust settlor is free to establish his/her own guidelines in their trust instrument with regard to the removal of the trustee, such as providing the trustee may only be removed for cause, or specifying the type of person who may serve as successor trustee under the trust instrument, or alternatively to impose limits on when, or in specific circumstances, the trustee can be removed by the trust beneficiaries. The Reporter’s comment to this section is revealing:

“Because the MTC does not automatically confer on the beneficiaries the right to remove a trustee without the involvement of the court, settlors will often wish to establish their own means for removal of trustees.”

Other States: If the original trust instrument does not expressly give to the trust beneficiaries the power to remove and replace a named trustee, can the trust instrument be modified by petition of those beneficiaries to confer upon them that trustee-removal power? It is not clear if MCL 700.7706 implicitly restricts the ability of a probate court, in a trust modification proceeding under MCL 700.7411, to give to the trust beneficiaries the ability to remove-and-replace an acting trustee without court involvement, or to alter the grounds for the removal of an acting trustee. Two examples follow where UTC 706 was implicated in a trust modification proceeding with regard to the removal of a trustee:

  • No Right of Trustee Removal: Previously one of my missives addressed the case in Pennsylvania with regard to a trust modification that sought to give to the trust beneficiaries the right to remove an acting trustee without court involvement. In Trust Agreement of Edward Winslow Taylor Appeals of Wells Fargo Bank,  164 A.3d 1147 (Pa 2017) a petition was filed by trust beneficiaries to modify a trust established in 1928 to give the beneficiaries the ability to remove and replace the corporate trustee without court approval. While the beneficiaries possessed the right to petition the Orphans (probate) Court to modify the trust [based pretty much on the same provision as Michigan Trust Code section 700.4711] on appeal the Superior (appellate) Court held that the authorized trust modification sought by the trust beneficiaries also had to comply with the trustee removal provision of Pennsylvania’s Trust Act, which was based upon UTC 706, i.e. the limited reasons set forth in the statute  when a trustee could be forcibly removed from that office by a court. The appellate court found that the attempt by the trust beneficiaries to modify the trust instrument to add their ability to remove a trustee without court involvement and without cause was ‘trumped’ by the specific trustee removal provision under the Pennsylvania Trust Act [much like Michigan’s MCL 700.7706] which only gives a court the power to remove a trustee and only on certain grounds, even though the trust modification statute is not expressly limited by the trustee removal statute with its specified reasons for a trustee’s removal. Using Michigan’s statutes, in essence the court held that MCL 700.7706 (grounds for removal) trumped  MCL 700.4711 (a beneficiary modification of the trust instrument).
  • Right of Trustee  Removal: Yet on somewhat similar facts, another court reached the opposite result. In In re: The Trust of Clarence Hildebrandt, No.115,530 (Ct. App. Kansas, Jan. 13, 2017) the trial court granted a petition by the trust beneficiaries to modify an existing trust to substitute a different successor trustee from the one who was named in the trust instrument. That court found that the settlor’s appointment of a successor trustee did not constitute a material purpose of the trust under that state’s trust modification statute. In the appellate decision the Court did not even consider the effect of the Kansas trustee removal statute, which was identical to Pennsylvania’s, that addresses the court’s [sole] ability to remove a trustee for specific causes to determine if the trust beneficiaries could proceed with their petition for modification. The appellate Court found that since material purpose was not defined in the Kansas statutes, it turned to the Restatement (Third) of Trusts, Section 65 for guidance. The Court concluded that merely by naming the successor trustee the settlor did not indicate his intention that the trustee must always be an independent individual as a material purpose of the trust. The Court also failed to address the comments with regard to another the Kansas trust statute which noted that ‘while beneficiaries may modify any terms of the trust as long as the modification is not inconsistent with the material purpose of the trust “under the UTC Section 706 is the exclusive provision on removal of trustees.” In short, even though Kansas, like Michigan, has a statute that expressly addresses a trustee’s removal and identifies the bases for such removal, that did not stop the Kansas probate court from allowing the beneficiary’s requested modification of the trust instrument to replace a named successor trustee.

Conclusion: It is not clear if trust beneficiaries can file a petition to modify the terms of their trust to give them the power to remove-and-replace an acting trustee without any court involvement. They have the power to file a petition for modification, but it is not clear if a probate court would deny that petition if it was in any way inconsistent with the power given to the probate court to remove-and-replace an active trustee only on the bases, or the grounds, set-forth in MCL 700.7706. If the settlor wants to give to the trust beneficiaries the authority to remove-and-replace a trustee, or specify the grounds upon which that fiduciary can be removed by the trust beneficiaries, it would be best to expressly give that power to the trust beneficiaries in the trust instrument and not rely upon a debatable interpretation of the Michigan Trust Code to achieve that goal.