Jeff Stuerman, vice president at A.G. Edwards in St. Louis, explains
that if
a beneficiary removes a corporate trustee, he must typically
replace the trustee with another corporate entity. “This is a protection for the
family against, for example, an 18-year-old beneficiary naming his buddy as
trustee,” Stuerman says, “and telling him, ‘Give all the money in my trust to
me.’” He recommends that beneficiaries start by simply asking a trustee to
resign, because most corporate trustees will not want to remain in a
relationship that might become difficult to manage.
There are, however, exceptions to this simple scenario. “I’ve seen a few
cases where, because of the amount of assets under management in a given trust,
trustees are reluctant to give up their post,” says Shiller. “Usually, these
conflicts end up in court.”
Going to court is, unfortunately, the other well-known option for taking
control of trusts. This tactic is commonly reserved as a last resort, however,
because it can cast family trust quarrels into the public eye—and it offers no
guarantee of a satisfactory outcome. A beneficiary simply telling a judge he
does not like the trustee is usually insufficient to convince a judge to change
the provisions of a trust. “Courts are often reluctant to call a professional
trustee on the carpet or to get in the middle of a family squabble,” Shiller
says. Beneficiaries are forced to make
a substantive complaint against
the trustee, such as showing that a trustee failed to abide by the terms of the
trust, played favorites with certain
beneficiaries or committed
outright malfeasance. A beneficiary might be able to claim that a trustee made
poor investment decisions, but that requires proving that he made inappropriate
investments, not just lousy returns in a down market.
Ten states—California, Illinois and New Hampshire among them—allow
beneficiaries to remove trustees for more nebulous reasons, such as a lack of
cooperation that substantially impairs the administration of the trust or
persistent failure to effectively administer the trust. But even under the most
favorable laws and provisions, firing a trustee carries with it a fair amount of
bureaucracy and costs. “Every time a trustee leaves a relationship, the trustee
is entitled to have an audit,” notes Fiduciary Trust’s Cohen. “You’re trying to
cut off any lawsuits.” Transferring the paperwork will take four to eight
weeks—not counting any delays due to litigation. The total cost—which generally
is paid by the trust—can range from a few thousand dollars to $10,000 and up if
the parties go to court. Some trustees may also insist on a termination fee,
which might come to 1 percent of the assets in trust.
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