A trustee has many important responsibilities and duties, including managing, controlling, and distributing trust property, while keeping beneficiaries and other relevant parties informed about the administration of the trust.
A trustee is a fiduciary, meaning that they are held to a very high standard for conduct. In executing his or her duties, a trustee is expected to put the needs of the trust and the trust beneficiaries above their own. Among other things, acting as a fiduciary means serving with “undivided loyalty,” remaining impartial, being careful and prudent in all actions, and keeping trust assets separate from your own.
Nominating a trustworthy and capable trustee or successor trustee is an important part of creating an estate plan. Unfortunately, it is not uncommon for issues with trustees to arise – such as conflicts between cotrustees, failure to meet important deadlines, self-dealing, or even trustees failing to distribute assets in compliance with the terms of the trust.
What are your options for challenging or removing a trustee who is not performing their responsibilities, hindering the administration of the trust, or actively working against the terms of the trust agreement?
One recourse is to petition the probate court for the removal of a trustee, particularly due to breach of trust. If you believe you have cause to petition for the removal of a trustee, it is extremely important that you consult with a knowledgeable trusts attorney as soon as possible to explore your options.
Petition for Removal of a Trustee
Under the Michigan Trust Code, certain parties – including the settlor (i.e., the creator of the trust), a cotrustee, or a qualified trust beneficiary – may request the court to remove a trustee. The court may also act to remove a trustee on its own initiative.
The court may remove a trustee in situations where one or more of the following occur:
- The trustee commits a serious breach of trust (that is, a significant violation by a trustee of a duty the trustee owes to a trust beneficiary)
- Lack of cooperation between cotrustees is substantially impairing the administration of the trustee
- Because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the purposes of the trust
- There has been a substantial change of circumstances, and the court finds that removal of the trustee best serves the interests of the trust beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available
Remedies for Breach of Trust
In lieu of or in addition to removing a trustee, the court may also order other relief it deems necessary to protect trust property or the interests of trust beneficiaries. Broadly speaking, the court may do any of the following to remedy a breach of trust that has occurred or may occur:
- Compel the trustee to perform their duties
- Enjoin the trustee from committing a breach of trust
- Compel the trustee to redress a breach of trust by paying money, restoring property, or other means
- Order a trustee to account
- Appoint a special fiduciary to take possession of the trust property and administer the trust
- Suspend the trustee
- Remove the trustee
- Reduce or deny compensation to the trustee
- Void an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed of and recover the property or its proceeds
- Order any other appropriate relief
When Can You Commence Proceedings?
The Michigan Trust Code also sets down some notable limitations on commencing proceedings against a trustee:
- A trust beneficiary cannot commence a proceeding against a trustee for breach of trust more than one year after the date the trust beneficiary or a representative of the trust beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the trust beneficiary of the time allowed for commencing a proceeding
- A trust beneficiary who has waived their right to receive reports cannot commence a proceeding for a breach of trust more than one year after the end of the calendar year in which the alleged breach occurred.
- In other situations, a judicial proceeding by a trust beneficiary against a trustee for breach of trust must be commenced within five years after the first of the following to occur: the removal, resignation, or death of the trustee, the termination of the trust beneficiary’s interest in the trust, or the termination of the trust
Understanding a Trustee’s Rights and Liabilities
There are also some specific circumstances and conditions to keep in mind when it comes to a trustee’s liability – and the rights of other individuals who may be dealing with the trustee.
For instance, the Michigan Trust Code makes clear that a trustee who acts “in reasonable reliance” on the terms of the trust as expressed in the trust instrument “is not liable to a trust beneficiary for a breach of trust to the extent the breach resulted from the reliance.”
Similarly, if an event occurs that affects the administration or distribution of a trust – including, but not limited to, marriage, divorce, performance of educational requirements, attainment of a specific age, or death – a trustee “who has exercised reasonable care to ascertain the happening of the event” is not liable for a loss resulting from their lack of knowledge or lack of notice.
In some trusts, you may find exculpatory language, relieving a trustee of liability for breach of trust. Such terms are unenforceable when the term “relieves the trustee of liability for breach of trust committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the trust beneficiaries,” or if the term was inserted as the result of an abuse by the trustee. However, the terms of a trust relieving a trustee of liability for breach of trust for the acquisition or retention of a particular asset or asset class or failure to diversify investments are enforceable.
A trustee is generally not liable to a trust beneficiary for breach of trust if the trust beneficiary consented to the conduct constituting the breach, released the trustee from liability for the breach, or ratified the transaction constituting the breach – unless the consent or ratification was induced by improper conduct, or the trust beneficiary did not know of one or more material facts relating to the breach.
Finally, it is important to keep in mind that a person who assists or deals with a trustee in good faith without knowledge that the trustee is exceeding or improperly exercising their powers is protected from liability.
Potential Outcomes and Next Steps
The Michigan Trust Code states that a trustee who commits a breach of trust is liable to the trust beneficiaries affected for whichever of the following is larger:
- The amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred, or
- The profit the trustee made by reason of the breach
Even absent a breach, a trustee may be accountable to an affected trust beneficiary for any profit made arising from the administration of the trust. However, absent a breach of trust, a trustee is not liable to a trust beneficiary for a loss or depreciation in the value of trust property, for failure to generate income, or for not having made a profit.
In a proceeding involving the administration of a trust, the court may award costs and expenses, including reasonable attorney’s fees, to any party who enhances, preserves, or protects trust property, to be paid from the trust that is the subject of the proceeding.
If a trustee participates in a civil action or proceeding in good faith, whether successful or not, the trustee is entitled to receive from the trust property all expenses and disbursements including reasonable attorney fees that are incurred. With that said, a court may reduce or deny a trustee’s claim for compensation, expenses, or disbursements with respect to a breach of trust.
What happens if a vacancy in trusteeship occurs due to disqualification or removal? If one or more cotrustees remains in office, a vacancy in a trusteeship does need not to be filled. A vacancy in a trusteeship must be filled if the vacancy leaves either:
- a trust that is not subject to a separate trustees provision as of the time of the vacancy without any remaining trustee
- any of the several separate trusteeships governed by an operative separate trustees provision without any remaining trustee
If a vacancy in a trusteeship of a noncharitable trust is to be filled, the following order of priority is used:
- In the manner designated by the terms of the trust
- By a person appointed by the court
If a vacancy in a trusteeship of a charitable trust is to be filled, the vacancy must be filled in the following order of priority:
- In the manner designated by the terms of the trust.
- By a person selected by the charitable organizations expressly designated to receive distributions under the terms of the trust
- By a person appointed by the court
Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary upon the showing of good cause.
A trustee who has resigned or been removed must proceed “expeditiously” to deliver the trust property in their possession to the cotrustee, successor trustee, or another person entitled to it.
Probate Litigation Is Complex. You Don’t Have to Go Through It Alone
Coming to terms with a loved one’s passing is a difficult and emotional process – and one that is only made more fraught when you need to deal with intricate legal matters at the same time. Probate litigation can cause emotions to run high, and lead to intense family arguments. Litigation will also require an understanding of extremely complex legal matters, as well as the specific laws for your state and county, and how they may apply based on your unique situation.
Throughout this trying time, it’s important to have an experienced and professional advocate on your side, one who can patiently help you understand the ins and outs of the probate process in your area.
Whether you are a settlor, a trustee, or a named beneficiary, a probate litigation attorney in your area can help address your questions and navigate the entire process, so that you can secure the best possible outcome for your situation.
If you’re based in Michigan, Attorney Dean Patrick can help. Mr. Patrick is knowledgeable on all aspects of estate planning, trusts, and probate, with years of experience as a practicing attorney. Whenever you’re ready to get started, Dean is here to listen and learn more about your circumstances, and start finding a solution to your desired outcome.
If you have any trust-related issue that has interrupted your life, you can count on our firm to work hard to accomplish your goals — with the expertise, empathy, intellect, and professionalism your matter deserves at every step of the way.
Ready to keep the conversation going? The Patrick & Associates, PLLC.. is conveniently located in Southfield, Michigan, close to both Wayne and Oakland Counties. Contact Dean E. Patrick at his Southfield, Michigan office at (833) 469-4897 or click here to arrange your initial consultation.
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