As an estate planning law firm, a big issue we see in the industry is that of trustee succession – what happens when a trustee resigns, is removed, or dies? To contextualize, a trustee is an extremely important position in a trust as, if you liken the trust to a car, the trustee is the one who has the keys and drives the car to begin with. Without a trustee at the wheel, a trust can’t fulfill its function to hold and pass on assets. Below, we will discuss trustee succession and what happens where there is a vacancy in the office of the trustee.

To begin, there are a few reasons why there might be a vacancy in the office of the trustee – removal, resignation, or death – but the first rule to follow is to always read and do what the trust itself says. A well-drafted trust will provide instructions for what to do with a trustee vacancy. If the trust says the beneficiaries vote for the new trustee for example, then they have to vote. Trusts are often large documents because they are typically built to address any potential circumstances.

What If There is No Trustee?

In our trusts, we typically first have the trustors (the people making the trust) pick people to be their successor trustees – the party who will step in to become trustee after the trustor, usually the parent, pass away. Essentially, we create a line of succession based on who the trustors think would be the best fit for the role. Next, as a safety net, we say the former trustee can designate a new trustee unless the former trustee is being removed as we do not want them sabotaging the trust on their way out. Then, we allow for a majority vote among the adult beneficiaries to decide who is to be the next trustee before allowing for a probate court to have the final say if all else fails – a power the court has regardless.

However, if a trust doesn’t say or it isn’t clear, then we need to first reference CA Probate Code Section 15644 which, in part, holds, “When a vacancy has occurred in the office of trustee, the former trustee who holds property of the trust shall deliver the trust property to the successor trustee or a person appointed by the court to receive the property and remains responsible for the trust property until it is delivered.”

What that means is whoever is holding or managing the trust property, usually the trustee who has resigned or was removed, must deliver the trust property to the new, successor trustee, and is on the hook for anything that happens to the property until that point. That delivery can be changing title on a bank account, filing an Affidavit with the county recorder changing title to any real property to the new trustee’s name, or even physically delivering goods such as personal items or keys to something like a safety deposit box or a house. This is called constructive delivery since you cannot physically hand over some assets.

Court Appointment of a Trustee

This code section also references a possible avenue for selecting a new trustee in the event of a vacancy – court appointment. Where there is a vacancy and the trust does not have a listed mechanism for appointing or selecting a successor trustee, then a probate court always retains the authority to appoint a trustee if required, but we’ll get into that a little more in a minute.

Trustee Liability

Remember, until the property is delivered to the new trustee, whoever they are, the former trustee cannot just wash their hands of the matter. Until they deliver the property, that former trustee is responsible for the property as if they were continuing to be the trustee. If there is a house, it can’t fall into disrepair or fall behind on bills. If there are investments, they need to be overseen. If there are personal items, they cannot be simply left behind or left to be stolen and or broken.

In fact, Section 15644 continues on to say, “A trustee who has resigned or is removed has the powers reasonably necessary under the circumstances to preserve the trust property until it is delivered to the successor trustee and to perform actions necessary to complete the resigning or removed trustee’s administration of the trust.” Again, that means the trustee who is on their way out the door, has to keep the ship, or car, right until the new trustee takes over. Until that delivery of the assets takes place, the former trustee retains the power to do only what is required to safeguard the assets - which of course, if going to be situation dependent. Most of the time, it's going to simply mean making sure nothing happens to the house before they deliver the keys to the new trustee.

Why Trustee Vacancies Occur

Death of Trustee

Now, let's get into some specifics for the different reasons vacancies occur, starting with the most common, death. That might sound strange, but the most common reason trustee succession is a concern is when the initial trustee has passed away. What we mean is that in the overwhelming majority of cases, when trustors initially create their trust, they put themselves as trustees which makes sense since you don’t want to give up control over your own stuff. At the creation phase, those trustors will also designate their successor trustees – at least two, a successor and a back-up. For example, mom creates a trust and is the trustee. She passed from old age and her financially responsible child was designated in the trust as the first successor and stepped into their trustee role and begins managing mom’s estate. Death is the most common reason for a change in trusteeship and does not carry any special rules aside from what has been discussed already: go down the line of succession in the trust, follow what the trust says if you run out of names, and petition a court if neither of those options are available.

Trustee Resignation and Declining to Serve

Next, we have the resignation of a trustee – a party declaring they no longer wish to be a trustee. However, as with removal of a trustee (discussed below), the resigning trustee is still on the hook so to speak. Their duties and obligations don’t end the moment they resign. The new trustee has to have the trust property delivered to them and accept their position as the new trustee as only then will the former trustee be relieved of their duties. Importantly, however, the former trustee is not relieved of any liability for the period they were in office as trustee as we discussed previously under Section 15644.

The method by which a trustee resigns is typically by executing a simple writing saying they are resigning as trustee and delivering such to either the next trustee or the next trustee and the beneficiaries. A notary is often recommended but not explicitly required. However, the new trustee must accept their position, typically with a simple writing that they accept the role, and their signature must be notarized. The method by which a potential trustee declines to serve in the first place should also be by a signed writing just like a resignation but without the delivery and intermediate responsibilities since a declining trustee was never actually the trustee.

Trustee Removal

Lastly, we have removal of a trustee, which is a massive subject in its own right. However, this post is already long so we have summarized the reasons a trustee may be removed here and will do a more in depth discussion in a later post so be sure you are subscribed to our newsletter to be notified when that post goes live. Generally, when we are discussing removal of a trustee, we are talking about forcing someone out of the trustee office via court removal and thus court involvement.

            To remove a trustee, the court requires there to be grounds for removal. Those can include:

1.    Breach of Trust.

2.    Trustee insolvency or otherwise unfit to administer or substantially unable to manage the trust estate.

3.    Where the trustee is substantially unable to resist fraud or undue influence.

4.    Failure or refusal to act or, where there are co-trustees, hostility, or lack of cooperation among said co-trustees that impairs administration of the trust.

5.    Where the trustee's compensation is excessive under the circumstances, which is, in essence, a breach of a trustee's duty of loyalty to not benefit to the detriment of the beneficiaries.

6.    Where a trustee is someone in a position to have exercised undue influence or coercion such as the drafter of the trust or, in the case where we see the most trouble, the caretaker of the trustor. This alone is a large subject and warrants its own discussion.

7.    "For other good cause," which is the catch-all that grants a judge discretion to remove a trustee where they see it is warranted but where the rationale does not fit into one of the categories already mentioned.

            Everything discussed above is spelled out in greater detail in CA Probate Code Section 15642 if you would like to read more. Again, this is a large subject, so we will cover it all in more detail in a later post, but to finish off removing a trustee, keep in mind that just like a resigning trustee, the removed trustee is still on the hook until the delivery of the assets and acceptance of trusteeship has occurred with the new, successor trustee. Being removed as trustee is not an instant removal of one’s duties as trustee and is never a removal of liability for one’s actions during their tenure as trustee.

Keep in mind, if you are aiming to remove a trustee, you must show cause, otherwise the court may find you operating in bad faith and hold you responsible for all the legal fees incurred as a result of the suit. That’s your legal fees, the defending trustee’s legal fees, any damages or expenses incurred by the trust as a result, and potentially the court filing fees. Trustee removal is not a small matter.

Just remember that when it comes to trustee succession, look at what the trust says first and follow what it says. If all else fails, a court will have final say as to who will be the trustee.

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