North Dakota Trust Law: Beneficiaries’ Ability to Remove and Replace Trustees
For many individuals, trusts can serve an essential role in their estate plan. Trusts can provide numerous benefits, such as avoiding or minimizing probate, managing assets effectively, and ensuring the distribution and safeguarding of wealth for future generations. However, trusts can also pose complexity, especially when disputes arise between trustees and beneficiaries. It’s crucial to effectively navigate these disputes, particularly when considering the removal of a trustee. This article discusses a powerful tool under North Dakota law, in which beneficiaries can collectively seek the removal and replacement of a trustee.
Trusts are fiduciary arrangements where a person, called a grantor, transfers assets to a trust, which is established through a legal document—often known as a trust agreement. These assets are managed by a trustee for the benefit of specified beneficiaries. In the realm of estate planning, a trustee plays a pivotal role in managing assets placed in a trust. However, there may come a time when the grantor(s) and/or beneficiaries desire the trustee to be removed and replaced by another trustee.
Let’s consider an example of a typical trust scenario. Meet John and Jane Doe, a North Dakota couple who have worked hard and built a sizeable fortune over their lifetime. To ensure the effective management and distribution of their assets for their own benefit, their children, and grandchildren, they have decided to secure their wealth in a trust. As such, they entrusted the trust department at their local bank, with whom they have had a longstanding personal and business relationship, to act as their corporate trustee.
However, as time passed, their once familiar local bank underwent significant changes. It was either bought out by a larger regional bank or expanded rapidly, or both, losing the personal touch that John, Jane, and the other beneficiaries valued. The bank’s headquarters moved, possibly even to a different state, and the trust services were no longer managed locally. Moreover, the individuals that John and Jane knew and trusted when they set up their trust had either retired or were let go due to the bank’s new corporate structure. The beneficiaries of the Doe’s trust found themselves dealing with a corporate trustee who was less accommodating, charged higher fees, and was slower and less responsive to their needs.
What actions can John, Jane, and the other beneficiaries take when confronted with these frustrations?
Historically, the task of removing a trustee has been a challenging process for trust beneficiaries. The hurdles were particularly high unless the trust agreement explicitly allowed beneficiaries to remove the trustee. This often meant that beneficiaries had to demonstrate that the trustee was at fault or had breached a fiduciary duty.
However, the introduction of the “No Fault” removal provision found in Section 706 of the Uniform Trust Code (UTC) has brought about a significant change. This provision, now enacted
in a majority of states, including North Dakota, allows for the removal of a trustee even if the trust agreement doesn’t provide the power to remove, and the trustee is not at fault.
Section 706 of the UTC, adopted in North Dakota under N.D.C.C. § 59-15-06, stipulates, in part, that the Court has the authority to remove a trustee. This removal can occur if evidence is provided that supports the existence of the following four factors:
1. Removal must be requested by all of the qualified beneficiaries;
2. Removal best serves the interests of all beneficiaries;
3. Removal is not inconsistent with a material purpose of the trust; and
4. A suitable successor trustee is available
A qualified beneficiary is a person who has a current right to receive distributions from the trust or would have a current right to receive a distribution if the current beneficiaries’ interests end or if the trust is terminated. (N.D.C.C. § 59-09-03(16)).
Thus, in the given situation, even if the trust agreement doesn’t specify the conditions for the removal or replacement of the trustee, and the trustee hasn’t shown any breach of fiduciary responsibilities, John and Jane, and the other beneficiaries might still find a way to replace the trustee.
Determining whether all four criteria are satisfied under North Dakota law can be a fact-intensive inquiry. It can vary from case to case, especially depending on the interpretation of a trust’s material purpose. For instance, courts in other states implementing UTC § 706 have ruled in certain situations that the designation of a specific trustee can be considered a material purpose of the trust.
It’s recommended to seek a legal professional who can provide needed advice during the trustee replacement process. They can help draft the necessary documents, navigate legal procedures, and prevent potential complications.
At DeMakis Law, PLLC, we are equipped with the necessary skills to assist clients in the process of removing a trustee and appointing a more suitable replacement for their trust’s needs. Our services enable clients to grasp their rights more profoundly, empowering them to protect the rights and interests of the trust’s beneficiaries.
Disclaimer—The information provided in this article is for informational purposes only and should not be interpreted as legal advice. No attorney-client relationship is formed by reading this article. The content of this article is intended to provide a general understanding of the law. It is not intended to be comprehensive legal advice or a substitute for professional counsel. Any examples provided herein are not intended to predict or guarantee how a court may rule in a specific matter. Each case has unique circumstances that may significantly influence the outcome. Readers should always consult an attorney for personalized legal advice.
