California trust law recognizes four primary ways to resign as trustee of a trust: The first way is in the manner specified in the deed of trust, even if the deed of trust allows the trustee to resign at will. The second way, applicable only to revocable living trusts, is with the consent of the trust grantor. The third way, applicable to irrevocable trusts, is with the consent of all beneficiaries. The fourth way is with a court order. A court may require a trustee to show grounds for his resignation, such as bankruptcy.
Consequences of Failure to Properly Resign
A trustee who abandons his position without complying with resignation procedures will remain civilly liable for any mismanagement or neglect of trust property until he is formally removed and a new trustee is appointed. He may be sued for failing to distribute property to beneficiaries, for failing to adequately care for trust property or investments of trust funds, or for failing to periodically notify beneficiaries of the state of trust property.
Appointment of Eligible Parties
As soon as a trustee resigns, a successor trustee may be appointed. The successor trustee may be either an individual or an entity such as a trust company. A trustee must have the legal capacity to perform all acts required by a trustee under California law. If the nominee is an individual, for example, he must be at least 18 years old and mentally competent. If the nominee is an entity, the entity must be validly formed under state law and must be permitted to engage in the business of trust management. Trustee nominees serving as a trustee for at least two other California trusts must obtain a license before assuming duties as trustee of a third California trust. Licensing requirements include passing an examination and completing coursework. Some nominees, such as trust company employees and attorneys, are exempt from licensing requirements.
If the trust deed names a successor trustee or sets forth procedures for naming a successor trustee, its terms must be followed. Otherwise, adult beneficiaries may agree on a particular trust company to act as trustee. If beneficiaries cannot agree, a court may appoint a suitable party to act as trustee.