Introduction
Navigating the complexities of removing a trustee in Arizona? This guide provides a comprehensive overview, from the basics of trusts to the legal intricacies of trustee removal. Let’s dive in!
Understanding Trusts?
A trust is a pivotal tool in estate planning, designed to streamline the process of settling a person’s affairs. Here’s a brief breakdown:
- Purpose: Trusts help in transferring property and assets to avoid probate after the settlor’s (creator of the trust) death.
- Management: A trustee or co-trustees manage the trust assets based on the trust’s terms.
- Distribution: Assets can be distributed directly to beneficiaries or held for future generations.
- Flexibility: Trust’s offer more flexibility than a will or non-probate transfer.
Typically, trusts reduce the expense, time and inconvenience of settling a person’s affairs.
Choosing the Right Trustee
Selecting an apt trustee can be challenging. While family members might seem like the obvious choice, it’s crucial to ensure they’re capable and trustworthy. For example, a settlor may feel obligated to select a family member to serve as trustee. Sometimes, even if the family member is not capable of administering the trust or should not be trusted to handle the trust assets and other duties.
Although a trustee may have seemed to be a proper selection, trust disputes may arise during administration of the trust. These and other issues may prompt a request for the removal of the trustee. In Arizona, the probate court can intervene if issues emerge.
Grounds for Trustee Removal
Trustees can be removed either based on the trust’s terms or under the Arizona Trust Code. Here are some common reasons:
- Material breach of trust.
- Lack of cooperation among co-trustees.
- Trustee’s unfitness or unwillingness to serve the beneficiaries.
- Request by all qualified beneficiaries.
- Significant change in circumstances.
Who may initiate removal of a trustee under Arizona law?
Under A.R.S. § 14-10706(A), the trust maker, a co-trustee, or a trust beneficiary may request that the Court remove a trustee. A Court may also remove a trustee on its own initiative.
So, what are the standards for removal of a trustee for cause in Arizona?
A.R.S. § 14-10706(B) provides the Court with guidelines of when removal of a trustee is appropriate:
- The trustee has committed a material breach of trust;
- There is a lack of cooperation among co-trustees that substantially impairs administration of trust;
- The trustee is unfit, unwilling or persistently fails to administer the trust for the benefit of the beneficiaries and the court determines that removal of the trustee best serves the interests of the beneficiaries;
- The trustee’s removal has been requested by all of the qualified beneficiaries, the court finds that removal best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a co-trustee or successor trustee is available; or
- There has been a substantial change of circumstances.
A trustee may be unfit for many reasons. For example, a trustee may become incapacitated, vulnerable and/or susceptible to undue influence. The Alzheimer’s Association reports that 1 in 3 seniors will die with Alzheimer’s disease or another form of dementia. With dementia so prevalent today, it is not uncommon for trustees to become unfit and subject to removal. Other trustees do not understand or simply refuse to comply with their duties.
The person requesting that the court remove a trustee has the burden of proof.
Real Scenario: Example
In In re the Matter of: The Donald R Schultz And Juanita Q Schultz Living Trust, Dated July 25, 1996 An Arizona Trust, the Arizona Court of Appeals found that the Superior Court correctly decided that a co-trustee had not met his burden of proof to remove his co-trustee. He could not produce sufficient evidence that his co-trustee’s actions fit into any of the circumstances justifying removal set forth in A.R.S. § 14-10706(B).
In this case, a brother and sister were named successor co-trustees of their parents’ trust. Shortly after the Court confirmed the brother and sister as co-trustees, problems quickly began. The tumultuous relationship between brother and sister created conflict and inaction regarding trust issues.
Brother argued that sister was unfit, unwilling, and persistently failed to administer the trust for the beneficiary’s benefit and that sister’s lack of cooperation substantially impaired trust administration, both of which are circumstances defined in A.R.S. § 14-10706(B) as justifying removal.
Sister argued that brother had tried to marginalize her involvement with trust management, but she proposed a trust management plan that gave brother sole signatory authority over the trust assets, subject to her consent and oversight. The Superior Court found that brother often purposefully crafted situations in which he would not get cooperation from sister and that he would change his position after reaching an agreement. Thus, the record contained ample evidence that both co-trustees were to blame, not just sister alone, and therefore brother did not meet his burden to have sister removed as co-trustee.
What Can the Court do in the Meantime?
Sometimes, circumstances warrant emergency protection of the trust property or other remedies before the Court decides whether to remove a trustee.
Pursuant to A.R.S. § 14-10706(C), the Court has various powers. Specifically, interim relief may include the following:
1. Compel the trustee to perform the trustee’s duties.
2. Enjoin the trustee from committing a breach of trust.
3. Compel the trustee to redress a breach of trust by paying money, restoring property or other means.
4. Order a trustee to account.
5. Appoint a special fiduciary to take possession of the trust property and administer the trust.
6. Suspend the trustee.
7. Remove the trustee as provided in § 14-10706.
8. Reduce or deny compensation to the trustee.
9. Subject to § 14-10706, 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.
10. Order any other appropriate relief.
These are the same remedies available if the Court finds that a trustee committed a breach of trust.
The Court, however, may not substitute its judgment for the trustee’s discretionary decisions. For example, trusts often provide that the trustee may distribute so much of the principal of the trust as the trustee, in his discretion, determines is necessary for the health, education, maintenance or support of a particular beneficiary or class of beneficiaries. In those circumstances, the trustee’s exercise of discretion may only be disturbed if the Court finds that the trustee abused his discretion – basically meaning that the trustee’s decision was totally unreasonable.
Seek Expert Guidance!
Trustee removal in Arizona can be intricate. Whether you’re considering removing a trustee, defending against a removal request, or seeking more information, our experienced attorneys are here to help. Please reach out to us to schedule a consultation with one of our experienced attorneys.
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FAQs
What is the role of a trustee? A trustee manages the assets of a trust based on its terms.
Can a trustee be removed without a valid reason? Typically, a valid reason is required, either based on the trust’s terms or the Arizona Trust Code.
How can I consult with an attorney? You can schedule a consultation with our experienced attorneys for personalized guidance.
Glossary
Settlor: The individual who creates the trust.
Trustee: The person who manages the trust.
Probate: The legal process of settling a deceased person’s estate.
Beneficiary: An individual who benefits from the trust’s assets.
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