Although most people continue to use a Last Will and Testament as their primary estate planning document, another option has become increasingly popular as well – a trust. Trusts are also commonly used as a secondary estate planning tool that can help achieve a specific goal, such as incapacity planning or asset protection. Regardless of what type of trust is used, and what the trust is intended to accomplish, all trusts must have a Trustee, appointed by the Settlor (the trust creator) whose primary job is to administer the trust. The trust administration attorneys at Nash, Nash, Bean & Ford, LLP explain what happens if the Trustee cannot serve.
Understanding Trusts – The Basics
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries.
All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason once active.
Why Would a Trustee Not Be Able to Serve?
A Trustee is appointed by the Settlor at the time the trust is created. If the trust is a living trust, it will become active immediately, meaning the Trustee will be expected to begin administering the trust immediately. If the trust is a testamentary trust, it could be years, even decades, before the trust activates, meaning the Trustee will not be expected to do anything until that time. There are several common reasons why a Trustee might not be able to fulfill his/her duties and responsibilities as Trustee, including:
- Refusing the appointment – a Trustee always has the option to refuse the initial appointment, which is why a Settlor should always discuss the appointment with the intended Trustee before making it in the trust agreement.
- Resigning the position – a Trustee also has the right to resign the position at any time after initially accepting it.
- Death, incapacity, or unavailability – more common with a testamentary trust, the appointed Trustee could predecease the Settlor, be suffering from incapacity, or be living in another country (or otherwise unavailable) when it comes time to activate the trust.
- Removal by beneficiaries or court – an acting Trustee can be removed under certain conditions by the beneficiaries of the trust and/or a judge for several common reasons, including:
- Failing to follow trust terms
- Mismanaging trust assets
- Conflict of interest
- Good cause
What Happens When a Trustee Cannot Serve?
If the Trustee appointed by the Settlor is unable to serve, for any reason, a new Trustee must take his/her place for the trust to continue operating. Ideally, the Settlor will already have appointed a Successor Trustee to take the Trustee’s place and that individual is available and willing to serve. If no successor was appointed, or if the appointed successor cannot serve, the trust terms may provide guidance. A settlor also has the ability to use the trust terms to provide instructions for choosing a replacement Trustee if necessary. If all else fails, the beneficiaries of the trust can petition a court to appoint a new Trustee.
Contact Trust Administration Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have questions or concerns regarding what happens when a Trustee cannot serve, contact the experienced trust administration attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.