Trusts are frequently used to transfer ownership of assets and save the time and money that comes with probate. When correctly used, they can be beneficial. But what happens when a trustee fails to uphold their obligations? Trustees have a fiduciary duty under Missouri law to administer a trust solely in the interest of the beneficiary. For example, trustees are generally prohibited from self-dealing. In the event that occurs, however, trustees are not simply automatically removed. Unless the trust instrument—the document creating the trust—allows removal by the settlor (the person who created the trust) or beneficiaries, a person who seeks removal of a trustee needs judicial approval to do so. Section 456.7-706, RSMo provides the following:
- The settlor, a cotrustee, or a qualified beneficiary may request the court to remove a trustee, or a trustee may be removed and replaced by the court within its discretion on its own initiative.
- The court within its discretion may remove and replace a trustee under the following circumstances:
- the trustee has committed a serious breach of trust;
- lack of cooperation among cotrustees substantially impairs the administration of the trust;
- 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 interests of the beneficiaries; or
- the trustee has substantially and materially reduced the level of services provided to that trust and has failed to reinstate a substantially equivalent level of services within ninety days after receipt of notice by the settlor, a cotrustee, or a qualified beneficiary or removal is requested by all of the qualified beneficiaries and in either such case the party seeking removal establishes to the court that:
- removal of the trustee best serves the interests of all of the beneficiaries;
- removal of the trustee is not inconsistent with a material purpose of the trust; and
- a suitable cotrustee or successor trustee is available and willing to serve.
As this statute shows, a mistake alone may not be enough to warrant removal of a trustee-a serious breach of trust, substantial impairment, or persistent failure may be required. Of course, each situation is different, and whether or not a judge will remove a trustee will depend on the exact facts involved. Two Missouri cases-one where a trustee was removed, and one where a trustee was not-show how courts evaluate these kinds of cases. In Sebree v. Rosen, 349 S.W.2d 865 (Mo. 1961), the trustee was removed for, among other things, continuing to operate a business with trust assets, and investing trust assets in speculation, actions which were not explicitly authorized by the trust instrument. The court noted:
“[t]he objects of trust investments are safety and income, safety being the primary and income the secondary consideration, that the trust assets pass without loss and with profit to the beneficiaries …. We conclude the best interests of the trust estate require the removal of [the trustee] for the breaches of the trust hereinbefore mentioned. The chancellor removed him on the ground that, considering all the circumstances involved, his actions tended to engender suspicion and hostility on the part of plaintiffs and resulted in a bitter schism within the family.
In contrast, in Webb v. St. Louis County Nat. Bank, 551 S.W.2d 869 (Mo. Ct. App. 1977), the trustee was not removed, despite the trustee (St. Louis County National Bank) engaging in self-dealing to its own benefit. Here, the bank proposed and drafted an assignment of funds. The trust beneficiary owed the bank $15,000, and the bank possessed several stocks from the trust beneficiary as collateral for the loan. Because the stocks were depressed at the time the loan came due, the trust beneficiary offered to assign the income which had accrued in the trust to the bank. The bank considered this course of action, but ultimately did not take it:
In the case at hand the trustee abandoned its purpose after consulting further with respect to their right to take an assignment. We believe along with the trial court that this incident falls far short of constituting a breach of fiduciary duty on the part of the trustee. Sound judicial discretion did not require removal of the trustee in this case.
As these cases and the relevant statute show, whether or not a trustee will be removed will depend on the exact facts of each situation. If you have questions regarding your role as a trustee or the trustee of a trust to which you are a beneficiary, call the attorneys at Newman, Comley and Ruth, P.C. at (573) 634-2266.