§ 15.2 Judicial Proceedings
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Any interested person may petition the court to intervene in the administration of a trust. ORS 130.050(1). The court may issue declaratory judgments or instructions regarding any administration matter. ORS 130.050(3).
To remedy a breach of trust that has occurred or to prevent a breach of trust, the court may:
(a) Compel the trustee to perform the trustee's duties;
(b) Enjoin the trustee from committing a breach of trust;
(c) Compel the trustee to pay money or restore property;
(d) Order a trustee to account;
(e) Appoint a special fiduciary to take possession of the trust property and administer the trust;
(f) Suspend the trustee;
(g) Remove the trustee as provided in ORS 130.625;
(h) Reduce or deny compensation to the trustee;
(i) Subject to ORS 130.855, 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; or
(j) Order any other appropriate relief.
ORS 130.800(2).
§ 15.2-1 Removal of Trustee
ORS 130.625 provides the following:
(1) The settlor, a cotrustee or a beneficiary may request that a court remove a trustee, or a trustee may be removed by a court on its own motion.
(2) A court may remove a trustee if the court finds:
(a) The trustee has committed a serious breach of trust;
(b) Lack of cooperation among cotrustees substantially impairs the administration of the trust;
(c) Removal of the trustee best serves the interests of the beneficiaries because the trustee is unfit or unwilling, or has persistently failed to administer the trust effectively; or
(d) Removal of the trustee best serves the interests of all of the beneficiaries and:
(A) There has been a substantial change of circumstances or removal has been requested by all of the qualified beneficiaries;
(B) A suitable cotrustee or successor trustee is available; and
(C) The trustee fails to establish by clear and convincing evidence that removal is inconsistent with a material purpose of the trust.
§ 15.2-1(a) Removal for Cause
Removal of a trustee is determined by the particular circumstances of each case. Holst v. Purdy, 117 Or App 307, 311, 844 P2d 229 (1992), rev den, 316 Or 528 (1993). The decision whether to remove a trustee is within the discretion of the trial court, but the guiding principle is whether, under the circumstances, the "continuance of the trustee in office would be detrimental to the trust." Cloud v. U.S. Nat'l Bank of Oregon, 280 Or 83, 92, 570 P2d 350 (1977) (quoting 2 Scott on Trusts § 107 (3d ed 1967)); see, e.g., Leahey v. Comm'n for Blind, 253 Or 527, 532, 456 P2d 77 (1969); Wood v. Honeyman, 178 Or 484, 169 P2d 131 (1946). The trial court's decision whether to remove a trustee is reviewed de novo on appeal. ORS 19.415(3); Cloud, 280 Or at 85.
A court will be more reluctant to remove a trustee who was named by the settlor, especially if the grounds for removal existed when the trustee was appointed and were known by the settlor. Holst, 117 Or App at 311 ("There is a strong statutory and common law preference to defer to the designation of a personal representative made by the testator."); see Restatement (Third) of Trusts § 37 cmt f (2003).
Not every breach justifies removal. To warrant removal, a breach must be "serious." A "serious" breach may be a single egregious breach or a series of breaches, which when viewed collectively become significant. ORS 130.625 cmt, printed in Valerie J. Vollmar, The Oregon Uniform Trust Code and Comments, 42 Willamette L Rev 187, 333 (2006). Courts have removed a trustee in the following situations:
• The trustee converted trust property. Wood, 178 Or at 488 (1946).
• The trustee had a conflict of interest and divided loyalties. Leahey, 253 Or at 531-32.
• The trustee improperly released collateral held by the trust. Wadsworth v. Bank of California, 97 Or App 491, 496, 777 P2d 975, rev den, 308 Or 593 (1989).
• The trustee improperly invested trust assets. Stephan v. Equitable Sav. & Loan Ass'n, 268 Or 544, 522 P2d 478 (1974).
• The trustee sold trust assets for less than fair market value and for the purpose of defeating the trust's distribution plan, McNeely v. Hiatt, 138 Or App 434, 443-44, 909 P2d 191, adh'd to on recons, 142 Or App 522, 920 P2d 1150, rev den, 324 Or 394 (1996).
Hostility between cotrustees may be a sufficient basis for removal if the animosity substantially interferes with the proper administration of the trust. See Restatement § 37 cmt e(1). However, hostility between the trustee and beneficiary has historically not been sufficient justification for removal. ORS 130.625 cmt, printed in Vollmar, 42 Willamette L Rev at 333.
As an alternative to removal, a court may instruct the trustee or impose restrictions on the trustee. In Windishar v. Windishar, 83 Or App 162, 167, 731 P2d 445 (1986), adh'd to on recons, 84 Or App 580, 735 P2d 10 (1987), the beneficiary sought to remove the corporate trustee for failing to provide statements as requested, and for refusing to make discretionary distributions from the trust. The court found the trustee breached its duties by failing to provide the requested statements, explaining that it could not avoid its duty simply because the beneficiary was subject to a guardianship. While declining to remove the trustee, the court directed the trustee to provide the statements and to be more liberal in its discretionary distributions in the future. Windishar, 83 Or App at 166-67. Similarly, in Holst, 117 Or App at 315, the court declined to remove the trustee who had an openly hostile relationship with the minor beneficiary's mother, but ordered the trustee to post a bond for each trust he administered for the minor as an additional safeguard. In Cloud, the court found that, although the trustee had breached its fiduciary duties by making improper distributions to the income beneficiary, removal was not warranted because the trust was due to terminate in the near future. Cloud, 280 Or at 92.
§ 15.2-1(b) Removal of Trustee Absent Breach of Duty
In 2013 the Oregon Legislature amended ORS 130.625(2)(d) to make it significantly easier for trust beneficiaries to remove a trustee without cause by the request of all beneficiaries. Or Laws 2013, ch 529, § 14. Under the current law, a petitioner seeking to remove a trustee must establish (1) either a substantial change in circumstances or that all qualified beneficiaries have requested a change in trustee, and (2) that a suitable successor trustee is available. Once a petitioner proves these elements, a trustee seeking to avoid removal must prove by clear and convincing evidence that removal is inconsistent with a material purpose of the trust (i.e., that that particular trustee's service as trustee is necessary to the trust's purposes).
§ 15.2-2 Trustee Liability
§ 15.2-2(a) Damages Stemming from Breach
ORS 130.805(1) provides the following:
A trustee who commits a breach of trust is liable to the beneficiaries affected for the greatest of
(a) The amount of damages caused by the breach;
(b) The amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred; or
(c) The profit the trustee made by reason of the breach.
The damages for which the trustee is liable are not limited to those affecting the beneficiary's interest in the trust. As the official commentary to the Oregon UTC explains,
if a trustee delays for two years making a required distribution to a beneficiary who wants to purchase a house, the trustee may be liable to the beneficiary for the lost benefit of a lower mortgage interest rate if rates increase during the two-year delay.
ORS 130.805 cmt, printed in Valerie J. Vollmar, 42 Willamette L Rev 187, 384 (2006).
Moreover, the trustee can be liable for any profits the trustee received even if the trustee's breach did not cause a loss to the trust or beneficiary. The trustee has a duty under ORS 130.655(1) to administer the trust solely in the interests of the beneficiaries and therefore may not profit personally from the trust. ORS 130.805 cmt, printed in Vollmar, 42 Willamette L Rev at 384. If the trustee does so, the trustee has violated the duty of loyalty and may have to disgorge the profits under ORS 130.805(1)(c).
Cotrustees are jointly and severally liable for damages resulting from a breach in which they participated. ORS 130.805(2). Cotrustees who do not participate in the breach may still share liability if they (1) failed to exercise reasonable care to prevent a cotrustee from committing a serious breach or (2) failed to compel a cotrustee to redress a serious breach. ORS 130.610(7). A trustee may seek contribution from cotrustees based on their comparative fault. In determining the amount of contribution a trustee may receive, the court considers the degree of fault of each trustee, whether any trustee acted in bad faith or with reckless indifference, and any benefit a trustee obtained as a result of the breach. ORS 130.805(2).
§ 15.2-2(b) Damages Absent a Breach
A trustee is liable for loss, depreciation in value, or failure to make a profit only if the loss, depreciation, or failure to make a profit resulted from a breach of trust. ORS 130.810(2). That is, a trustee does not guarantee the value of the trust property, and no liability attaches unless the trustee breaches a duty owed to the beneficiaries.
However, a trustee cannot personally profit from a trust even if the profit was not obtained through a breach of trust and the trustee is accountable to the beneficiary for any such profits...
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