There are various grounds and methods for removal of a trustee in Arizona. In this article, we will first describe the basics of trusts and then explain some of the reasons why a trustee may be removed. Finally, we will discuss the tools that beneficiaries may use to remove a trustee of a trust that is governed by Arizona law.
What is a Trust?
A trust is an excellent tool in estate planning. Typically, trusts reduce the expense, time and inconvenience of settling a person’s affairs. A properly designed and funded trust allows the settlor (creator of the trust) to transfer property and assets into the trust to avoid probate after he dies. A trustee (or co-trustees) is placed in charge of the trust and managing its assets. The assets are then handled according to the terms of the trust. The assets are sometimes distributed outright to the beneficiaries and sometimes held in trust and distributed over time or held for future generations.
However, selecting a proper trustee is a difficult task, especially if there is any influence over the settlor. A settlor may feel obligated to select a family member to serve as trustee, 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, prompting a request for the removal of the trustee. Fortunately, in Arizona, trusts are subject to the probate court’s authority if a problem arises. In certain situations, removal of a trustee becomes necessary to properly administer a trust for the benefit of the beneficiaries.
Trustees may be removed pursuant to the terms set forth in the trust. For example, it is not uncommon for the trust maker (who is also a beneficiary) to reserve the right, without cause or reason, to remove a trustee and appoint a different trustee.
The Arizona Trust Code also defines circumstances when a trustee may be removed by the Court.
Who may remove 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.
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), “pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order appropriate relief under § 14-11001, subsection B as may be necessary to protect the trust property or the interests of the beneficiaries.”
Such relief includes the power to appoint an interim “special fiduciary” to administer the trust before the Court decides whether to permanently remove the trustee. Specifically, the 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.
Contact Our Experienced Arizona Trust Attorneys if you Have any Questions!
The standards and rules for removal of a trustee in Arizona can be involved and confusing. If you believe you have cause to remove a trustee, you are a trustee defending against a wrongful request to remove you, or would like more information about removing a trustee or any other probate, trust or estate dispute in Arizona, please contact us to schedule a consultation with one of our experienced attorneys.
If you have any questions about the administration of a trust, please give us a call at 480.607.7900 or contact our office.