September 28, 2012

Trustee Vacancy

Simply stated, a trust will not want fail for want of a trustee. Prob C § 15660. In regular English this means that even if there is no acting trustee, the trust will continue nonetheless. 
The following are instances in which there is a vacancy in the office of trustee (Prob C § 15643):
  1. The person named as trustee rejects the trust.
  2. The person named as trustee cannot be identified or does not exist.
  3. The trustee resigns or is removed.
  4. The trustee dies.
  5. A conservator or guardian of the person or estate of an individual trustee is appointed.
  6. The trustee files a petition for adjudication of bankruptcy or for approval of an arrangement, composition, or other extension under the federal Bankruptcy Code, or a petition filed against the trustee for any of these purposes is approved.
  7. A trust company's charter is revoked or powers are suspended, if the revocation or suspension is to be in effect for a period of 30 days or more.
  8. A receiver is appointed for a trust company if the appointment is not vacated within a period of 30 days.
When a vacancy occurs, appointment of a new trustee can be achieved through various ways. 

First, if the trust instrument provides a practical method of appointing a trustee or names the person to fill the vacancy, the vacancy shall be filled as provided in the trust instrument. Prob C § 15660(b). For example, many trusts allow the last named trustee to appoint a successor if that person declines to act.

Second, when the trust does not specify a successor or the manner of selection, a trust company can be appointed trustee if approved by the adult beneficiaries. Prob C § 15660(b). However, most trust companies will not accept appointment unless the trust is rather large, i.e. the trust is comprised of millions of dollars of assets. Hence, this option is not available to the vast majority of trusts. 

Third, if the first two options are unavailable, the trust beneficiaries may petition the appropriate court to select a successor trustee. Prob C § 15660(d). The court shall give consideration to any nomination by the beneficiaries who are 14 years of age or older. Prob C § 15660(d).  

By far the optimal method to replace a trustee is by abiding by the terms of the trust. It is the fastest and most economical way to fill the vacancy. In contrast, a trust will typically not have enough assets to merit a trust company assuming trusteeship. Furthermore, a petition to appoint a trustee will cost thousands of dollars in attorney fees. Also, the appointment of a successor trustee by a court will only result in the appointment of one trustee. If that one trustee vacates the office of trustee, the beneficiaries will have to petition the court again to select another trustee.