Should a trust always allow for a change of successor trustee?

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Ranunculus
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Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

The many discussions on quality of service from corporate trustees has me wondering if trust beneficiaries should always be given a way to change trustees should problems arise in trust administration and service quality. How can this be done with a spendthrift trust, where the beneficiary may or may not make wise decisions on the matter?

Does a beneficiary of a spendthrift trust have any remedy for poor service if the trust does not include a mechanism to change the corporate trustee?
Luckywon
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Re: Should a trust always allow for a change of successor trustee?

Post by Luckywon »

Ranunculus wrote: Thu Apr 22, 2021 12:50 am The many discussions on quality of service from corporate trustees has me wondering if trust beneficiaries should always be given a way to change trustees should problems arise in trust administration and service quality. How can this be done with a spendthrift trust, where the beneficiary may or may not make wise decisions on the matter?

Does a beneficiary of a spendthrift trust have any remedy for poor service if the trust does not include a mechanism to change the corporate trustee?
We have so little confidence that we can select a corporate trustee now that will

a) be able and willing to serve when needed, and
b) continue to serve well

that we didn't nominate a specific one now. We appointed our remainder beneficiaries trust protectors with powers to appoint and removed successor trustees when needed, including corporate trustees.

For your spendthrift trust, is there anyone who can serve as a trust protector to appoint and remove successor trustees? Relative? Attorney? Close friend?
123
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Re: Should a trust always allow for a change of successor trustee?

Post by 123 »

Beneficiaries could likely go to court and try to convince a judge to approve whatever change is needed. That could involve a considerable expense without a guarantee of success.
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Ranunculus
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

For your spendthrift trust, is there anyone who can serve as a trust protector to appoint and remove successor trustees? Relative? Attorney? Close friend?
The problem is that the people who would be best suited for this are older and unlikely to be available when needed. I suppose we could appoint a law firm as trust protector, or throw caution to the wind and allow the beneficiary to change trustees once or twice, perhaps from a short list of local and national trust companies. The question is whether the company we chose will provide good service when there is no consequence for providing inadequate service.
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Ranunculus
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

123 wrote: Thu Apr 22, 2021 1:03 am Beneficiaries could likely go to court and try to convince a judge to approve whatever change is needed. That could involve a considerable expense without a guarantee of success.
This is the scenario that has me concerned.
afan
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Re: Should a trust always allow for a change of successor trustee?

Post by afan »

You could require that any successor be a large professional entity that regularly serves as a corporate trustee. That would not prevent shopping for one that may do what the beneficiary wants. It would limit the choices to those that are likely to act responsibly.
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Re: Should a trust always allow for a change of successor trustee?

Post by bsteiner »

The same provision would usually apply to initial trustees as to successor trustees.

If the beneficiary is sufficiently responsible, the beneficiary of each trust could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). If not, then either the replacement could have to be a corporate trustee, or someone else could have that power.
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Lee_WSP
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Re: Should a trust always allow for a change of successor trustee?

Post by Lee_WSP »

Unless the beneficiary is severely disabled (addiction, mental health, etc) I don’t think tying their hands beyond what afan suggested is beneficial. The trust document should spell out when distributions are allowed. If you don’t trust the complete discretion of a corporate trustee, then limit discretionary distributions to a percentage.

Or create a different annuity like trust. Or buy them an annuity and leave the trust to the grandchildren. Or something else.
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Re: Should a trust always allow for a change of successor trustee?

Post by restingonmylaurels »

Ranunculus wrote: Thu Apr 22, 2021 12:50 am The many discussions on quality of service from corporate trustees has me wondering if trust beneficiaries should always be given a way to change trustees should problems arise in trust administration and service quality. How can this be done with a spendthrift trust, where the beneficiary may or may not make wise decisions on the matter?

Does a beneficiary of a spendthrift trust have any remedy for poor service if the trust does not include a mechanism to change the corporate trustee?
It sounds like you are concerned with three different issues: the ability to remove a trustee, the choice of the successor trustee by the beneficiary, and the influence of the beneficiary on the successor trustee.

Clearly there must always be the ability to remove the trustee, by the beneficiary and/or trust protector/remover.

The choice of a successor trustee can be limited to a corporate trustee generally and further if you wish.

You can also limit the trustee's discretion over distributions, by say limiting these to income only or a percent of net assets in a given year and also providing a trust term for the life of the beneficiary. Then no matter what trustee is in place, the trustee must comply with these restrictions.

Remember that a trustee is held to a series of fiduciary standards and cannot just run rampant on the suggestion of the beneficiary, even if appointed by the beneficiary.
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Ranunculus
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

restingonmylaurels wrote: Thu Apr 22, 2021 1:46 pm
Ranunculus wrote: Thu Apr 22, 2021 12:50 am The many discussions on quality of service from corporate trustees has me wondering if trust beneficiaries should always be given a way to change trustees should problems arise in trust administration and service quality. How can this be done with a spendthrift trust, where the beneficiary may or may not make wise decisions on the matter?

Does a beneficiary of a spendthrift trust have any remedy for poor service if the trust does not include a mechanism to change the corporate trustee?
It sounds like you are concerned with three different issues: the ability to remove a trustee, the choice of the successor trustee by the beneficiary, and the influence of the beneficiary on the successor trustee.

Clearly there must always be the ability to remove the trustee, by the beneficiary and/or trust protector/remover.

The choice of a successor trustee can be limited to a corporate trustee generally and further if you wish.

You can also limit the trustee's discretion over distributions, by say limiting these to income only or a percent of net assets in a given year and also providing a trust term for the life of the beneficiary. Then no matter what trustee is in place, the trustee must comply with these restrictions.

Remember that a trustee is held to a series of fiduciary standards and cannot just run rampant on the suggestion of the beneficiary, even if appointed by the beneficiary.
Yes, you are correct. I would like our beneficiary to be able to change the corporate trustee if they are are not providing adequate service, not necessarily for a breach of fiduciary duty. I am less worried about 'trustee shopping' than the prospect of being locked into a contract with no way out. Our trust currently has just this paragraph in the section "Power to Remove and Replace Trustee":

"The surviving Settlor, or in the event of incapacity of either Settlor, the non-incapacitated Settlor, reserves the power, exercisable by an instrument in writing delivered to the then acting Trustee, effective on the successor Trustee's written acceptance of the Trust, to remove and replace the then acting Trustee of any Trust established herein (including the power to name a Co-Trustee to act with the Surviving Settlor), or to change the designation of any successor Trustee of any Trust established herein, by naming another individual or corporate Trustee as the replacement or successor Trustee."

Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
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Lee_WSP
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Re: Should a trust always allow for a change of successor trustee?

Post by Lee_WSP »

Ranunculus wrote: Thu Apr 22, 2021 4:06 pm [
Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
Does the trust continue after the last settlor to die? If not, there's no need to bother, it just distributes to your beneficiaries.
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Re: Should a trust always allow for a change of successor trustee?

Post by restingonmylaurels »

Ranunculus wrote: Thu Apr 22, 2021 4:06 pm
restingonmylaurels wrote: Thu Apr 22, 2021 1:46 pm
Ranunculus wrote: Thu Apr 22, 2021 12:50 am The many discussions on quality of service from corporate trustees has me wondering if trust beneficiaries should always be given a way to change trustees should problems arise in trust administration and service quality. How can this be done with a spendthrift trust, where the beneficiary may or may not make wise decisions on the matter?

Does a beneficiary of a spendthrift trust have any remedy for poor service if the trust does not include a mechanism to change the corporate trustee?
It sounds like you are concerned with three different issues: the ability to remove a trustee, the choice of the successor trustee by the beneficiary, and the influence of the beneficiary on the successor trustee.

Clearly there must always be the ability to remove the trustee, by the beneficiary and/or trust protector/remover.

The choice of a successor trustee can be limited to a corporate trustee generally and further if you wish.

You can also limit the trustee's discretion over distributions, by say limiting these to income only or a percent of net assets in a given year and also providing a trust term for the life of the beneficiary. Then no matter what trustee is in place, the trustee must comply with these restrictions.

Remember that a trustee is held to a series of fiduciary standards and cannot just run rampant on the suggestion of the beneficiary, even if appointed by the beneficiary.
Yes, you are correct. I would like our beneficiary to be able to change the corporate trustee if they are are not providing adequate service, not necessarily for a breach of fiduciary duty. I am less worried about 'trustee shopping' than the prospect of being locked into a contract with no way out. Our trust currently has just this paragraph in the section "Power to Remove and Replace Trustee":

"The surviving Settlor, or in the event of incapacity of either Settlor, the non-incapacitated Settlor, reserves the power, exercisable by an instrument in writing delivered to the then acting Trustee, effective on the successor Trustee's written acceptance of the Trust, to remove and replace the then acting Trustee of any Trust established herein (including the power to name a Co-Trustee to act with the Surviving Settlor), or to change the designation of any successor Trustee of any Trust established herein, by naming another individual or corporate Trustee as the replacement or successor Trustee."

Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
The settlor will always have the ability to remove the trustee while they are living but assuming it is a living trust, then what happens after the death of the settlor? Hard to believe an attorney would not have included those provisions for removal by beneficiaries, they are pretty standard. If you wish to further split the roles, you can appoint separate individuals to be the trustee remover and the trustee appointer, to address any concerns about a beneficiary removing a trustee hoping for more influence.

I would definitely get an amendment done but would engage an experienced trust lawyer, who can look for other missing provisions.
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

Lee_WSP wrote: Thu Apr 22, 2021 4:11 pm
Ranunculus wrote: Thu Apr 22, 2021 4:06 pm [
Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
Does the trust continue after the last settlor to die? If not, there's no need to bother, it just distributes to your beneficiaries.
Yes, it is a spendthrift trust for one beneficiary. The successor trustee is a corporate trustee, and distributions are for "support, health, maintenance, education, and advancement in life". The trustee has discretion in distributions depending on other income. I think I need to read examples of other spendthrift trusts to get a feeling for the type of language we want to use. Our beneficiary is not severely disabled but is financially naive and potentially susceptible to con-artists. Plus the current significant other of 3 years has a sketchy past and dysfunctional family, the future is very unpredictable.
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Re: Should a trust always allow for a change of successor trustee?

Post by restingonmylaurels »

Ranunculus wrote: Thu Apr 22, 2021 5:00 pm
Lee_WSP wrote: Thu Apr 22, 2021 4:11 pm
Ranunculus wrote: Thu Apr 22, 2021 4:06 pm [
Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
Does the trust continue after the last settlor to die? If not, there's no need to bother, it just distributes to your beneficiaries.
Yes, it is a spendthrift trust for one beneficiary. The successor trustee is a corporate trustee, and distributions are for "support, health, maintenance, education, and advancement in life". The trustee has discretion in distributions depending on other income. I think I need to read examples of other spendthrift trusts to get a feeling for the type of language we want to use. Our beneficiary is not severely disabled but is financially naive and potentially susceptible to con-artists. Plus the current significant other of 3 years has a sketchy past and dysfunctional family, the future is very unpredictable.
One other point, as it seems like you are drafting your own trust. I would not recommend that but keep in mind there is the standard language which should be in every such trust agreement and the language that is specific to what you are uniquely trying to do in your situation. The trustee removal language belongs to the former category and the trustee discretion language for distributions mostly falls into the latter.

Your description of your beneficiary and the other side of your family calls out pretty loudly for well thought-out succession planning which should include at least the one trust. Again, think it is worth it for you to find a local attorney who specializes in succession planning.
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Ranunculus
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

restingonmylaurels wrote: Thu Apr 22, 2021 5:37 pm
Ranunculus wrote: Thu Apr 22, 2021 5:00 pm
Lee_WSP wrote: Thu Apr 22, 2021 4:11 pm
Ranunculus wrote: Thu Apr 22, 2021 4:06 pm [
Nowhere in the document does it mention the ability of our beneficiary to change the corporate trustee and it didn't occur to me to include that until reading some of the posts on this forum. I have the sinking feeling that we will need to do yet another amendment in the coming years.
Does the trust continue after the last settlor to die? If not, there's no need to bother, it just distributes to your beneficiaries.
Yes, it is a spendthrift trust for one beneficiary. The successor trustee is a corporate trustee, and distributions are for "support, health, maintenance, education, and advancement in life". The trustee has discretion in distributions depending on other income. I think I need to read examples of other spendthrift trusts to get a feeling for the type of language we want to use. Our beneficiary is not severely disabled but is financially naive and potentially susceptible to con-artists. Plus the current significant other of 3 years has a sketchy past and dysfunctional family, the future is very unpredictable.
One other point, as it seems like you are drafting your own trust. I would not recommend that but keep in mind there is the standard language which should be in every such trust agreement and the language that is specific to what you are uniquely trying to do in your situation. The trustee removal language belongs to the former category and the trustee discretion language for distributions mostly falls into the latter.

Your description of your beneficiary and the other side of your family calls out pretty loudly for well thought-out succession planning which should include at least the one trust. Again, think it is worth it for you to find a local attorney who specializes in succession planning.
I actually paid a small fortune to have our trust and wills drafted by an attorney at a firm specializing in estates and trusts. I read it thoroughly but should have done more research before everything was finalized.
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Lee_WSP
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Re: Should a trust always allow for a change of successor trustee?

Post by Lee_WSP »

What does the successor trustee clause say? Or was was that it?
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Ranunculus
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Re: Should a trust always allow for a change of successor trustee?

Post by Ranunculus »

Lee_WSP wrote: Thu Apr 22, 2021 7:02 pm What does the successor trustee clause say? Or was was that it?
It just states that once the co-trustees are dead or incapacitated the corporate successor trustee will take over. Once both initial trustees are dead, a separate trust for the sole beneficiary is created. A vacancy of the trustee can be filled by the beneficiary, so I guess if the company goes out of business it will be possible for the beneficiary to designate a new trustee.
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Re: Should a trust always allow for a change of successor trustee?

Post by Lee_WSP »

Yeah I’d get an amendment drafted unless you’re absolutely sure you don’t want your beneficiary to have any control over who manages the assets for them.
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