In Rapela v. Green, 2012 UT 57, the Utah Supreme Court has offered guidance on when removal of a trustee is appropriate. The Court interpreted Utah Code §75-7-706(2)(d), which provides that a court may remove a trustee if (1) there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, (2) the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and (3) a suitable cotrustee or successor trustee is available.
The Court held that, in order for a trustee to be removed, all three requirements of §75-7-706(2)(d) must be satisfied. (The plaintiff had argued that the “best interests” requirement should be waived if the other two conditions were met.) The Court further held that, if all three elements are satisfied, removal is not automatic, but rather the court may then remove the trustee or not, in its discretion.
The plaintiff put forth two additional related arguments. First, she argued that the “best interests of the beneficiaries” means the beneficiaries’ desires as to who should serve as trustee. The Court rejected this argument, holding that the best interests of the beneficiaries is determined by reference to the trust instrument, not the beneficiaries’ subjective desires.
Second, the plaintiff argued that a request for removal should be granted as long as doing so would not be detrimental to the trust. The district court found that the plaintiff would have been a suitable trustee, but that the existing trustee was more capable. The Supreme Court rejected the plaintiff’s argument, holding that the trustee may be removed only when doing so is the most advantageous way to promote the beneficiaries’ interests.
The plaintiff, who was named as the successor trustee in the trust instrument, took the position that the district court improperly compared the qualifications of the existing trustee with her own. The Supreme Court held that a district court may legitimately compare the existing trustee’s qualifications with those of the prospective trustee in determining whether removal will serve the beneficiaries’ best interests. In doing so, the court may consider the following factors: the experience and qualifications of the existing trustee and the prospective trustee; their fees; their understanding of the beneficiaries’ personal and financial situations; their personal relationship with the beneficiaries; tax obligations based on the trustee’s location; the settlor’s intent, as expressed in the trust instrument; convenience and efficiency; and any other material circumstances.
Finally, the plaintiff argued that the trustee had a conflict of interest that justified removal because, in his individual capacity, he held interests in LLCs in which the trust also held interests. The Court acknowledged that a conflict of interest could potentially exist where a trustee holds interests in assets in both his individual and fiduciary capacities, but found that no conflict existed in this case. The plaintiff claimed that the trustee had failed to liquidate the LLC interests for personal reasons. However the district court found that there was no evidence that liquidating the LLC interests would have been in the trust’s best interest. The Supreme Court further held that the trustee was not engaged in self-dealing because the settlor appointed him as trustee with the knowledge that his personal interests could conflict with the trust’s interests.
The Court did not address the district court’s ruling that the alleged deterioration of the settlor’s relationship with the trustee could not constitute a substantial change of circumstances because a change of circumstances can occur only after the settlor’s death (i.e. only after the trust became irrevocable).
For a detailed discussion of trustee removal in Utah, see Section 8.4.8 of The Utah Law of Trusts & Estates, an online legal reference treatise available at The Utah Trust & Estate Educational Resource Center.
Rust Tippett is the author of this blog post.
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This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, P.C. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.