When is Removing a Trustee Not Removing a Trustee?
Removing the trustee of an Ohio trust is not something to be done lightly, for good reason. The creator of a trust (settlor) selected a successor trustee he or she had faith in to administer the trust as the settlor intended. Therefore, the Ohio Trust Code (Section 5807.06(B) ) only permits the removal of a trustee by a court if the trustee has committed a serious breach of trust; if there are co-trustees who cannot cooperate to administer the trust; or if the trustee is unfit or unwilling to administer the trust effectively, or has failed to do so. So, even if the beneficiaries do not like a choice of trustee, an Ohio court will respect the settlor’s appointment of a trustee. But when is removing a trustee not removing a trustee?
The answer is before the successor trustee has stepped into that role. A successor trustee, by definition, does not become the trustee immediately: he, she, or it succeeds the settlor or initial trustee. (We say, “he, she, or it” because a successor trustee may be an organization like a bank. as well as a person.)
A typical setup is that a settlor creates a trust and serves as trustee during his or her lifetime. After the settlor dies (or becomes legally incapable of managing the trust), the successor trustee takes over. Another scenario is that the settlor creates a trust for a loved one, like a spouse, and that person acts as their own trustee until the successor trustee is needed.
During the period between the time the successor trustee is named in the trust instrument, and the time they take over trust administration, “removing” them is not really removing them. To put it more accurately, it is “un-nominating” them.
Why Would Someone “Un-Nominate” a Trustee?
If you are the settlor of a trust, you don’t need to un-nominate a trustee. You can simply amend the trust instrument to name a new successor trustee. If you are not the settlor, things are a little bit more complicated.
But before we get to the topic of how to un-nominate a trustee, let’s talk about why you might want to do that. Let’s say your now-deceased spouse set up a trust for you during their lifetime, making you trustee. After your death, a local bank is named as trustee, and your children, who are now adults, will be beneficiaries.
But perhaps the trusted local bank has been purchased by a large financial services corporation with headquarters in another city or state. You have no particular connection with this corporation, and no desire to have them serve as trustee when you can no longer do so. Your adult children agree that one of them can serve as trustee.
Or perhaps your brother-in-law was named as successor trustee, but he has developed a gambling problem, or dementia, or is no longer well-suited to be trustee for some other reason. It makes little sense to wait until he takes over as trustee to remove him from that role. What action could you and your children take to prevent a person or organization you are not comfortable with from serving as trustee?
Options to “Remove” a Trustee Prospectively
It is easier to prevent a problem than to fix one. So what can you do before an undesirable successor trustee actively assumes that role?
There are a couple of options. The simplest is probably to create a private settlement agreement (PSA) between yourself, the currently serving trustee, and your children, the beneficiaries. You can, using a PSA, modify the terms of the trust in certain regards, including the nomination of a successor trustee. If some beneficiaries were unwilling to agree, you could also petition the court to modify the terms of the trust. It may also be possible for the current trustee to “decant” the old trust into a new one, with a new successor trustee.
Once the originally-nominated successor trustee takes over, however, there is little recourse for the beneficiaries, except the limited grounds for removal identified in Ohio Revised Code 5807.06(B). That is why it is important to be familiar with the terms of a trust to which you are an interested party, either as current trustee or as beneficiary.
If you have questions about modifying a trust through a PSA or otherwise, or need to remove an acting trustee, contact an experienced Ohio probate attorney.
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