Removal by Action of Beneficiaries
If the trust is revocable, it may contain a provision that allows the grantor to unilaterally modify the terms of the trust deed without revoking the trust. If the grantor is still alive, the beneficiaries may ask the grantor to remove the successor trustee. Once the grantor dies, however, the trust automatically becomes irrevocable even if it was originally created as a revocable trust. If the trust is irrevocable, whether by the terms of the trust deed or as a consequence of the death of the grantor, beneficiaries can amend the trust deed to remove a successor trustee only if the trust deed specifically permits this. Some trust deeds appoint a "trust protector" whose sole function is to remove an unsatisfactory trustee on behalf of the beneficiaries.
Grounds for Seeking a Court Order
A court may remove a successor trustee of an irrevocable trust for several different reasons. Some states, such as Pennsylvania, will amend an irrevocable trust to remove a successor trustee if the grantor and all beneficiaries agree to removal. If the grantor is dead, the beneficiaries cannot remove the trustee even by unanimous approval. Courts in other states will remove a trustee only if he commits misconduct, becomes incapable of performing his duties or fails to administer the trust in accordance with the grantor's original intentions. Examples of misconduct include mismanagement of trust funds and neglect of duty. The trustee may also be removed if he becomes insolvent, seriously ill or otherwise unable or unwilling to perform his duties.
The grantor, any beneficiary or any co-trustee may petition a court to remove a successor trustee if proper grounds can be established. In some states, such as California, a court may initiate removal proceedings on its own motion. If the trustee refuses to resign, the court convenes a hearing and allows both sides to give testimony and call witnesses before ruling on the removal petition.
In some cases, removal of a trustee is enough to undo the damage he has done to the beneficiaries. A state court may order the trustee to pay compensatory damages to the beneficiaries or to the trust itself for any loss of trust assets caused by the trustee's wrongful acts or omissions. A court may also reverse any illegal transaction involving trust assets, such as the sale of real estate to third parties.