Chapter 4.2 Rights of All Trust Beneficiaries

• Jurisdiction: Washington

§4.2 RIGHTS OF ALL TRUST BENEFICIARIES

This section discusses a trust beneficiary's rights during administration of the trust.

(1) Right to remove a trustee

The bases for removing a trustee are similar to those of a personal representative, although with a trustee there is no statutory list. RCW 11.98.039 provides the mechanism for a change of trustee, but it does not list the bases upon which one can remove a trustee. The closest it comes is clarifying that

any beneficiary of a trust, the trustor, if alive, or the trustee may petition the superior court having jurisdiction for the appointment or change of a trustee or cotrustee under the procedures provided in RCW 11.96A.080 through 11.96A.200 [of Washington's Trust and Estate Dispute Resolution Act (TEDRA)]: (a) Whenever the office of trustee becomes vacant; (b) upon filing of a petition of resignation by a trustee; or (c) for any other reasonable cause.

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RCW 11.98.039(4) (emphasis added). The answer to what constitutes "reasonable cause" resides in the common law.

By way of background, the common law provides that "a trustee is a fiduciary who owes the highest degree of good faith, diligence and undivided loyalty to the beneficiaries." In re Estate of Ehlers, 80 Wn.App. 751, 757, 911 P.2d 1017 (1996). "A trustee's duties and powers are determined by the terms of the trust, by common law and by statute." Id. A trustee's obligation to comply with his or her duties is absolute. Good faith is irrelevant when a trustee breaches a duty owed to beneficiaries. Restatement (Second) of Trusts §201, cmt. b (1959); George T. Bogert et al., The Law of Trusts & Trustees §543 (3d rev. ed. 2008).

Many forms of conduct permissible for those acting at arm's length are forbidden for fiduciaries. The most fundamental duty owed by a trustee to the beneficiaries of a trust is the duty of loyalty. 3 Mark L. Ascher, Austin W. Scott, & William F. Fratcher, Scott and Ascher on Trusts §17.2, at 1077 (5th ed. 2006).

The trustee owes a duty to the beneficiaries to administer the affairs of the trust solely in the interest of the beneficiaries and to exclude from consideration his or her own advantages and the welfare of third persons. Bogert, Trusts & Trustees §543; Restatement (Second) of Trusts §170(1) (1959). The trustee must deal fairly and justly with the beneficiary and act solely in the beneficiary's best interest. Bogert, Trusts & Trustees §543.

A trustee's failure to comply with the terms of the trust is a breach of the trustee's fiduciary duty. Esmieu v. Schrag, 88 Wn.2d 490, 498-99, 563 P.2d 203 (1977). Furthermore, "[w]here a trustee finds himself in the position where he has either individually or as trustee for another, an interest which conflicts with that of the beneficiaries of the trust, he should resign from the trust so as not to attempt the impossible task of representing conflicting interests." Tucker v. Brown, 20 Wn.2d 740, 769, 150 P.2d 604 (1944) (emphasis added). As the Washington Supreme Court has explained, the "general rule" is that

[o]ne of the most familiar doctrines of the law of trusts is that a trustee cannot purchase from himself or at his own sale. The law does not stop to inquire into the fairness of the sale or the adequacy of price, but stamps its disapproval upon a transaction which creates a conflict between the self-interest and integrity of the trustee.

Ryan v. Plath, 20 Wn.2d 663, 667, 148 P.2d 946 (1944) (quoting 65 C.J.S Trusts §642, at 768).

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In addition, among a trustee's key duties is the duty to keep the beneficiaries fully informed of the activities in the trust. A trustee's "dut[ies] include[] the responsibility to inform the beneficiaries fully of all facts which would aid them in protecting their interests." Esmieu, 88 Wn.2d at 498. This duty includes the responsibility to inform the beneficiaries fully of all facts that would aid them in protecting their interests. Id.

Removal of a trustee is one of the primary remedies for a breach of his or her fiduciary duties. Some of the seminal cases are briefed below.

In re Estate of Ehlers, 80 Wn.App. 751, 761, 911 P.2d 1017 (1996). A trustee who breaches his or her duties may be removed as trustee by petition of the beneficiary; the party petitioning for removal must demonstrate that removal is clearly necessary to save the trust property, even if bad will between parties is evident (citing RCW 11.98.039(3)).

Porter v. Porter, 107 Wn.2d 43, 55-56, 726 P.2d 459 (1986). The second wife's asserted community property interest in cash value policies that were intended to fund a trust designated for the benefit of the son of decedent's first marriage set up a conflict of interest between the second wife and the son. Thus, the second wife's failure in her duty as trustee to administer the trust in the son's best interest was sufficient to support the second wife's removal as trustee.

In re Marriage of Petrie, 105 Wn.App. 268, 19...