In an earlier article we reviewed various duties that are imposed upon a trustee. In this post, we will discuss some of the possible grounds that may merit the removal of a trustee in Hawaii. Generally speaking, there are no grounds for the automatic removal of a trustee and a court has wide latitude when considering the removal of a trustee. The court will consider each situation on a case-by-case basis. However, there are instances when a trustee's acts are so egregious that they provide a court with ample reason to remove the trustee. The following are some of the grounds that may lead to a trustee's removal:
Failure to obey a court order. A court may order a trustee to do some administrative task (e.g. pay taxes or make distributions to a beneficiary or complete an accounting). If a trustee willfully ignores a direct order from the court regarding some aspect of a trust's administration, a strong argument could be made for the removal of that trustee.
Failure to follow the terms of the trust instrument. If the trustee disregards the terms of the trust and manages the trust as he sees fit, the court will likely consider removing the trustee since the trust is not being administered as the settlor had intended. For example, if the trustee distributes trust property that is not in accordance with the trust's terms or fails to make investments as directed or makes prohibited investments, removal may be warranted even if the size of the trust estate has grown under the trustee's management. In this instance, the removal is not based upon the performance of the trust assets under the trustee's direction, but rather the fact that the trustee was not administering the trust as the settlor had envisioned.
Failure or refusal to act. As mentioned in the earlier post, a trustee may simply, for whatever reason, fail to act. A trustee's failure to act may result in the wasting or dissipation of trust assets, which the trustee could be held personally liable. Even if no harm is done to the trust estate from the trustee's inaction, the trustee may still be removed if it can be shown that he ignored repeated requests by the beneficiaries for the trustee to act and administer the trust.
Co-mingling of trust property with personal assets. If a trustee co-mingles the trust's assets with her own, even if it was a honest mistake, the court may find cause to remove the trustee. The separation of trust assets from personal assets is a fundamental duty since it affects the security of the trust property.
Failure to account. If a trustee fails to provide an accounting to a trust beneficiary due to inadvertence with no malicious intent, the court would likely not remove a trustee for that reason alone. However, if the trustee's actions (or inaction) were meant to hide the true state of affairs with the trust, then the court may have reason to remove the trustee.
Trustee takes trust property for own use. If a trustee appropriates trust property for her own use and was not authorized to do so per the trust's terms, then the trustee may be removed by the court. Even if the use of the property was an honest mistake, the court has an obligation to ensure the preservation of trust property. Restitution will likely be ordered by the court, but this remedy would only be to ensure the trust is made whole and would not be enough to counter the removal.
Hostility between trustee and beneficiary. While we've mainly talked about what may constitute grounds for removing a trustee in Hawaii, the fact that a beneficiary may not get along with a trustee is NOT a valid basis for removal. Disagreements or incompatibility between a trustee and beneficiary are frequently cited as reasons for removal, but a court will usually not take action if the trustee is administering the trust properly. However, if the hostility has escalated to a point where it affects the trust's administration or it has led the trustee to engage in vindictive acts, then a court may be persuaded to remove the trustee.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
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