Just because a trustee was named in a trust document does not necessarily mean they will continue to serve perpetually. Many trust instruments include language granting the settlor (creator of the trust), and/or the beneficiaries the authority to remove a trustee, with or without specific “cause” for removal. In addition, the Massachusetts Uniform Trust Code (“MUTC”) provides specific grounds upon which a settlor, co-trustee, or beneficiary may seek a trustee’s removal. The MUTC also includes a “no-fault” removal provision, which allows for the removal of a seemingly otherwise-suitable trustee. The Kahn case, recently decided by the Massachusetts Appeals Court, addresses what happens when a beneficiary seeks to invoke the MUTC’s no-fault removal statute to a trust that otherwise allows removal only “with cause.”
trustee removal: with cause
The MUTC contains many fault-based grounds for removal of a trustee “with cause,” including as follows:
(1) the trustee has committed a serious breach of trust;
(2) there is a lack of cooperation among co-trustees that substantially impairs the administration of the trust;
(3) because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries. G.L. ch. 203E, § 706(b)(1)-(3).
In addition to the default statutory “with cause” provisions, the terms of a trust may provide specific reasons or procedures for removing a trustee. In the event of a contradiction between the terms of the trust and the MUTC, typically, the terms of the trust will control, giving deference to the settlor’s intent. Trustee removal is extremely fact specific, and the court’s application of the standards for removal may vary. The court may be reluctant to remove a trustee expressly appointed by the settlor, again giving deference to the settlor’s intent. In cases of alleged hostility, trustee removal is not warranted when the claimed hostility does not affect how the trust is administered. In addition, simple trustee error may not warrant removal, even if it constitutes a technical breach. Courts do not commonly remove a trustee “for cause,” merely for a few errors of judgment that can easily be fixed and will likely not happen again.
trustee removal: without cause
In addition to the fault-based grounds for removal, the MUTC separately provides a mechanism for removal of a trustee without cause:
“The court may remove a trustee if … removal is requested by all of the qualified beneficiaries, 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 a suitable co-trustee or successor trustee is available.” G. L. c. 203E, § 706(b)(4).
Until recently, the application of this statute had not been tested in Massachusetts. Practitioners routinely discussed it, wondering what parameters the Courts might put in place, particularly surrounding the “material purpose of the trust” component. In the Kahn case, we have our first appellate guidance on the issue.
the kahn case
In a recent Appeals Court case, Matter of Leo Kahn Revocable Tr., 102 Mass. App. Ct. 38, 42 (2022), the Court was faced with two issues: (1) in a situation involving inconsistency as to the removal of a trustee, does a trust provision prevail over the MUTC? and (2) if the trust provision does prevail, is no-fault trustee removal still permissible? The case involved the Leo Kahn Revocable Trust, created in 2006 by the now-late Leo Kahn. The Trust provided that, upon Leo’s death, his wife, Emily, and his son, Joseph (Emily’s stepson), would serve as trustees. Nine years after Leo died, Emily filed a Petition to Remove Joseph as co-trustee. Emily relied on the MUTC’s no-fault statute.
Joseph contested the Petition, arguing that the terms of the Trust prevented no-fault removal. In support of his argument, Joseph cited to two sections of the Trust: (1) a provision that listed specific “for cause” removal grounds, such as disability or malfeasance, and also included a broad catch-all definition for “cause”: “[a]ny other reason for which a state court of competent jurisdiction would remove a trustee”; and (2) a separate provision that set forth different trustee-removal requirements only after Emily’s death, to include removal “with or without cause”. Joseph argued that reading these provisions together, a trustee could not be removed without cause during Emily’s lifetime, including under Section 706(b)(4).
mutc v. trust provision:
In addressing the first issue, the general rule is that “[t]he terms of a trust shall prevail over any provision of” the MUTC, and the Court agreed with Joseph that this general rule must apply with respect to the trustee-removal provisions. However, that was not the end of the analysis.
is no-fault removal permissible:
The Court then turned to the trust provisions to determine whether no-fault removal was nevertheless permissible. The Court ruled that the language of the Trust itself was ambiguous as to whether no-fault removal was allowed, giving particular weight to the catch-all language: “[a]ny other reason for which a state court of competent jurisdiction would remove a trustee.” Does G. L. c. 203E, § 706(b)(4) constitute a “reason for which a state court of competent jurisdiction would remove a trustee? “Would the application of the no-fault removal statute, under these circumstances, be “inconsistent with a material purpose of the trust”? The Court remanded the case to the Probate and Family Court for further proceedings requiring evidence of the settlor’s intent in an effort to guide the answers to these open questions. The fiduciary litigation bar will watch closely to see how this plays out.
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