Trust Protectors – A Rhetorical Question – the Removal of a Trustee

Facts: Assume that Greenleaf Trust agrees to serve as the trustee of an irrevocable trust instrument which contains the appointment/acceptance of a trust protector. One of the powers that is expressly conferred on the trust protector under the trust instrument is the ability to ‘remove the trustee with or without cause.’

Rhetorical Question: If Greenleaf Trust can be removed [fired] without cause by the trust protector, i.e. for no reason whatsoever, will Greenleaf Trust subconsciously spend much of its time, attention and energy to accommodate the trust protector’s expectations at the expense of the trust beneficiary? Does Greenleaf Trust ‘dance to the tune’ of the trust protector and not to the ‘tune’ of the trust beneficiaries? No need to answer this question- its rhetorical- but it is something to think about when administering a trust and responding to the requests of trust beneficiaries.

Reality: Legally Greenleaf Trust has a fiduciary duty to the trust beneficiary and not to the trust protector. But it is naïve to think that Greenleaf Trust will carry out its duties under the trust instrument and completely ignore the reality that it can be fired by the trust protector at any time.

Practical Implications:

• If the can be fired at any time by the trust protector,  in order to protect itself, does the trustee overwhelm the trust protector with trust information and accountings, even when the trust instrument is silent as to the amount of reporting the trustee must make to the trust protector?
• Will there be more reports and accountings delivered from the trustee to the trust protector, which results in more expense incurred in the basic administration of the trust,  when the trust instrument is silent on reporting?
• Must the trustee advise the trust protector with regard to each request for a distribution made by a trust beneficiary, even if the scope of the delegated powers to the trust protector appear to be administrative only, e.g. amend the trust’s administrative provisions to reflect changes in the law.

Law: The trust beneficiary normally cannot remove the trustee without a probate court hearing; even then, the probate judge cannot remove an acting trustee without finding good reason to do so under the Michigan Trust Code. The Code identifies the grounds upon which a probate judge can remove an acting trustee, which include:

• The trustee commits a serious breach of trust;
• The lack of cooperation among co-trustees which substantially impairs the administration of the trust;
• The unfitness, unwillingness or persistent failure of the trustee to administer the trust effectively, which leads the probate court to determine that the removal of the trustee best serves the purposes of the trust; or
• There is a substantial change in circumstance, and the court finds that the removal of the trustee best serves the interest of the beneficiaries, and that removal is not inconsistent with the material purposes of the trust, and a suitable successor trustee is available.

These statutory reasons upon which a probate judge to remove an acting trustee supersede and replace all common law bases for the removal of a trustee. Pollack v Barron (In re Gerald L. Pollack Trust) 309 Mich App 125 (2015).  

In contrast to the statute’s reasons for the removal of a trustee all of which carry some sense of severity before a trustee can be removed, e.g. serious; substantial; persistent; a trust protector does not have to give any reasons, or identify any  facts, before it exercises the delegated power to remove the acting trustee without cause.

Message: I raise this rhetorical question because I am pretty sure that most clients who adopt an irrevocable trust do not fully appreciate, let alone read, the powers that are conferred on a trust protector under the lengthy, if not tome-like,  trust instrument. Moreover, I fear that too many estate planning lawyers cavalierly include a trust protector provision in a trust instrument with the view that it is not much more than boilerplate, and in their earnest belief that an expansive trust protector provision merely adds flexibility to an irrevocable trust instrument in anticipation  of all of the future law changes that will regularly impact trusts. Sitting on the other side of the desk these days makes me think twice about the automatic inclusion of an expansive trust protector provision in a trust instrument, or at a minimum, re-thinking the additional administrative costs that will go along with keeping the trust protector informed so that he/she can perform their function under the trust. If a trust that you may be called upon to administer contains a trust protector provision with numerous delegated powers, or an old trust that is  to be updated  to now include the addition of an expansive trust protector provision, you owe it to yourself, and to your prospective client, to closely read the delegated powers with a view towards the ease of trust administration. I am not suggesting that all trust protectors are bad, just that probably the trust settlor is not aware of just how much power is being given to the trust protector under most of the trust protector provisions that are drafted these days.