New York state law provides numerous legal grounds for removing a trustee from a trust. These grounds apply to many different types of trusts, including family trusts. The trust document, created by the grantor of the trust, can specify additional grounds for removing the trustee of a family trust.
Grounds for Removal of a Trustee under New York Law
The primary grounds for removing a trustee under New York state law are listed below:
- Failure to comply with the terms of the trust. The trust document is established by the creator of the trust, and it governs the rules of the trust. The trustee, whose position was created by the trust document, is under an obligation to comply with these rules, and they can be removed if they don’t. A common example of failure to comply with the terms of the trust is the failure to consult with a co-trustee before making a decision.
- The trustee has become financially insolvent or is expected to become insolvent in the near future. This is particularly relevant if the trustee is a company.
- Incapacity. Two kinds of incapacity are most commonly relied upon: (i) medical incapacity (dementia, for example), or (ii) incapacity due to substance abuse (alcoholism, for example). Incapacity also refers to the state of a minor (under 18).
- Failure to provide an accounting as required by the trust document, New York law, or a court of competent jurisdiction. Accounting is a written report on the affairs of the trust and the disposition of trust assets. Beneficiaries are entitled to receive an accounting every so often, and a court may demand one in the event of litigation.
- Failure to communicate with beneficiaries. The trustee should communicate with beneficiaries respecting all matters relating to the trust (not limited to providing a periodic accounting).
- Self-dealing. Trustees are subject to the fiduciary duty of loyalty to the trust, rather than to themselves. They can be removed if they violate this duty, regardless of whether the trust is harmed. Borrowing money from the trust bank account is an example of self-dealing, even if the trustee pays back the money on time.
- Dishonesty. Fraud or misrepresentation relating to the trust, or theft of trust property, can serve as grounds for the removal of a trustee.
- Mismanagement of trust assets. Even an honest trustee can be removed if he manages trust assets in an incompetent manner.
- Refusal to comply with a valid court order.
- Additional grounds specified in the trust document, if any. A trust document may specify additional grounds for removing a trustee. It might, for example, specify that a trustee can be removed if he is convicted of a serious crime.
- Good cause. Good cause is a catch-all category in case a trustee’s misconduct cannot easily be classified. In a practical sense, it is impossible to specify all of how a trustee’s conduct might justify their removal from office.
When interpreting the significance of the foregoing grounds for removing a trustee, please keep in mind that New York courts are under no obligation to remove a trustee simply because an interested party so requests. The court is not under an unqualified obligation to remove a trustee even at the trustee’s own request. However, it can set conditions that the trustee must meet before he can be relieved of his responsibilities.
Who Is Qualified to Seek Removal of a Trustee?
To file for removal of a trustee, you must have “legal standing,” and you have legal standing if you stand to gain or lose based on the outcome of the proceedings. Parties that typically have legal standing in a trustee removal proceeding include:
- A co-trustee;
- A creditor of the trust;
- A trust beneficiary (under certain circumstances); and
- A person or entity that acts as surety on the bond that the trustee is required to post.
This list is not necessarily exhaustive. Other parties may have legal standing as well, depending on the circumstances.
The New York legal system provides two procedures for the removal of a trustee. The preferred way is to simply follow the instructions provided in the trust document. The trust document may, for example, provide that the beneficiaries may remove the trustee by unanimous or majority vote if the due cause is found. Alternatively, the trust document may require the intervention of a court before a trustee can be removed.
If the trust document is silent on the question of the removal of a trustee (and many are), that doesn’t mean that the trustee cannot be removed. It simply means that an interested party must petition the court for removal of the trustee. Once this petition reaches the court, the judge will make the decision. New York courts can be quite reluctant to remove a trustee over the objections of the trustee unless strong evidence justifies removal.
An alternate trustee is someone named in the trust document to succeed the original trustee in case the original trustee cannot serve for some reason (death, removal from office, etc.). Although it is not necessary for a trust document to name an alternate trustee, it is a good idea. New York courts are more likely to approve the removal of a trustee if a qualified alternative has already been named in the trust document.
Now Is No Time to Hesitate
If you own significant assets, then you need to begin your estate planning early – you never know what the future might bring. However, a “fill in the blanks,” do-it-yourself approach to estate planning simply will not work. All of my years of experience have taught me that no two clients are alike, and as such, no two estate plans should be alike. Instead, your estate plan should reflect your unique values and priorities.
Contact Andrew M. Lamkin as soon as possible by calling (516) 605-0625 or by filling out my online contact form. Once you contact my office, we can schedule an appointment where I can listen to your story and answer your questions. Since my clients’ convenience is my number one priority, I can even meet with you at your home if you prefer.