The MLO Minute: “Changes in Staff Not Enough for Court Removal of Trustee” —
By, Jennifer Simons, Esq. —
Banks and other organizations may have turnover of personnel and staffing changes over the years, especially in situations where one bank succeeds to another bank or merges with another. However, is a change of personnel or change of policies and procedures, a sufficient reason for a court to remove a trustee? In a recent decision by the Superior Court of Pennsylvania (In Re Amended and Restated Deed of Trust of Margaret M. Holdship, Dated February 26, 1981 FBO Holdship, 2023 WL 309010 (Pa. Super. Jan. 19, 2023), the Court held that changes in personnel of a corporate trustee did not warrant the court removal of the trustee, absent a showing that the changes resulted in harm, such as the mismanagement of trust assets or a failure to keep beneficiaries informed regarding the status of the trust.
This case involved a trust which was being administered by a bank and an individual (who was also a beneficiary of the trust), as co-trustees. The individual trustee petitioned the Court requesting the removal of the bank as co-trustee, and the appointment of another bank to serve as co-trustee. The Petitioner argued that the removal of the bank as trustee was warranted due to the bank committing a serious breach of trust. The breach of trust was based upon the bank’s failure to provide consistent staffing for the trust and imposing new procedures on beneficiaries when requesting distributions from the trust.
Absent specific language in a trust document permitting the removal of a trustee, 20 Pa.C.S. § 7766 (b) provides for the removal of a trustee by the orphans’ court, if it finds that removal of the trustee best serves the interests of the beneficiaries of the trust and is not inconsistent with a material purpose of the trust, a suitable co-trustee or successor trustee is available and:
(1.) The trustee has committed a serious breach of trust;
(2.) Lack of cooperation among co-trustees substantially impairs the administration of the trust;
(3.) The trustee has not effectively administered the trust because of the trustee’s unfitness, unwillingness or persistent failures; or
(4.) There has been a substantial change of circumstances. A corporate reorganization of an institutional trustee, including a plan of merger or consolidation, is not itself a substantial change of circumstances.
To satisfy element (1) the Petitioner argued that the changes in personnel by the bank and a new policy of only making distributions upon request with documentation for such request constituted a “serious breach of trust.” Previously, the corporate trustee made set quarterly distributions.
In its decision, the Court gave several examples of what would constitute a breach of trust. Such examples included: a single act that causes significant harm or involves flagrant misconduct; a series of smaller breaches, such as violations of the trustee’s duties to administer the trust in good faith; and failure to keep the beneficiaries informed of events related to the trust administration. As such, the Court found that the mere change of personnel alone, was not a serious breach of trust. The Court went on to say that staffing changes are normal and expected with employee turnover, and that no harm occurred as a result of the changes. Additionally, the Court stated that the trust document gave the trustee the discretion as to the timing and amount of distributions from the trust, and as such, did not constitute a breach of trust.
The Court added, with regard to element (4), changes in personnel alone is not considered a “substantial change in circumstances” allowing for the removal of a trustee. The Court reiterated that changes in personnel, or a merger or takeover is not in itself enough to show a substantial change in circumstances warranting the removal of the trustee. In this case, the Petitioner did not show that the changes resulted in such things as the loss of a personal relationship with the trustee or a change of location, making it difficult for the beneficiaries to meet with the trustee.
Although changes in personnel or a merger of banks, may be frustrating to beneficiaries, the Court made clear that these changes alone are not sufficient for the Court to remove a trustee. The Petitioner must show that the required elements under 20 Pa.C.S. § 7766 have been met. To avoid the need of Court approval to remove a Trustee, language should be included in the trust document permitting a settlor, beneficiary, or other individual to remove a trustee. Professional advice and careful consideration should always be sought when creating a trust document, to ensure that the trust is drafted to allow for portability/flexibility should circumstances change in the future. Our Estates and Trusts Department is here to help! Contact us today by clicking here or calling any of the phone numbers on our website!