14.3 Trustee Removal

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

14.3 Trustee Removal

If a corporate trustee is selected, consideration should be given to whether the beneficiaries of the trust should have the right to remove the trustee and name a successor trustee. If the beneficiaries are spendthrifts, this right should not be granted to them. They will simply shop around until they find a corporate trustee whom they expect to be lenient in distributing income and principal and then remove the current trustee and appoint the more lenient trustee as successor. In most other situations it will be appropriate to grant the surviving spouse or current income beneficiaries the right to remove the current trustee and appoint a successor trustee. This right should give rise to no adverse tax consequences if the successor trustee is also a corporate trustee, but caution must be exercised.

If the successor trustee can be an individual, including a beneficiary who has the right of removal, the right (even if never exercised) could result in the trust being included in the beneficiary's estate.² Thus, a right of removal should only permit another corporate trustee to be appointed, unless the trust has been carefully drafted to avoid the tax traps to individual trustees, as discussed in 14.4. Even when the successor is a corporate trustee, there used...