Part 3 of my series on the recently enacted Massachusetts Uniform Trust Code (MUTC) highlights some of the provisions dealing with the office of trustee. (You can read Part 1 here and Part 2 here).
The role of trustee carries with it important responsibilities. Not only is the trustee responsible for protecting and preserving trust property, the trustee must also exercise trust powers in accordance with the terms and purpose of the trust. As the fiduciary charged with prudently investing and distributing trust assets consistent with the wishes of the grantor, the trustee must exercise its powers while adhering to certain duties owed to trust beneficiaries.
Accepting or declining a trusteeship under the MUTC
A person designated as trustee is not required to accept the role. For various reasons, both personal and professional, a designated trustee might wish to refuse to serve in that capacity. Under Section 701 of the MUTC, a person can refuse to accept the position of trustee simply by doing nothing. If the designated trustee does not accept the role “within a reasonable time after knowing of the designation,” that person “shall be deemed to have rejected the trusteeship.”
If, however, a designated trustee feels compelled to take steps to preserve trust property, but still wishes to reject the trusteeship, the MUTC does not penalize those actions by making that person serve against their will. As long as the designated trustee sends a rejection to the grantor or to a qualified beneficiary (if the grantor is no longer alive or is incapacitated) within a reasonable time of taking such steps, the designated trustee will not be held liable for those actions. This is basically the “good Samaritan” rule applied to potential trustees.
But if the person designated as trustee is interested in serving, the MUTC provides for the person to accept the position in the following ways:
- By substantially complying with a method of acceptance contained in the terms of the trust; or
- If the terms are silent, by accepting delivery of trust property and exercising trust powers and performing trust duties consistent with acceptance.
Filling a vacancy and appointing a successor trustee
The Massachusetts Uniform Trust Code also provides rules for filling a vacancy in a trusteeship and for the appointment of a successor trustee. These provisions were originally included as part of Massachusetts Uniform Probate Code, but those were repealed and the provisions inserted in the new trust code. In particular, Section 704 outlines a number of scenarios that result in a vacancy in the trustee role, with any vacancy triggering the appointment of a successor trustee. Section 704 then goes on to provide the order of priority that should be applied when filling that vacancy.
Specifically, when the office of trustee is vacant for any reason listed in the Code, the office will be filled in the following order of priority:
- The successor trustee named in the trust document;
- The person chosen through the unanimous agreement of the qualified beneficiaries;
- A person appointed by the court.
How can a trustee resign under the MUTC?
A trustee can resign by giving at least 30 days’ notice to the grantor and any co-trustees of a revocable trust, and to the qualified beneficiaries and co-trustees of any other type of trust. A trustee can also resign with the approval of the court. Prior to the MUTC, unless the terms of the trust specifically provided the trustee with the power to resign, the trustee could only do so by approval of the court. Passage of the MUTC, therefore, relaxes these rules, making it easier for a trustee to resign.
How does the MUTC provide for the removal of a trustee?
Section 706 provides the requirements for removing a trustee. If requested by the grantor, any co-trustee, or a beneficiary, a court may remove a trustee for the following reasons:
- A serious breach of trust has been committed by the trustee;
- Where there are co-trustees, for lack of cooperation that “substantially impairs the administration of the trust”;
- When due to unfitness, unwillingness, or a “persistent failure” on the part of the trustee to effectively administer the trust, the court determines that removal of the trustee would be in the best interests of the beneficiaries;
- If there has been a “substantial change in circumstances” or if all of the qualified beneficiaries request the removal, as long as the court finds that removal is in the best interests of the beneficiaries and removal is not inconsistent with a material purpose of the trust.
The last entry is a change from prior Massachusetts law, and generally works to the benefit of the qualified beneficiaries, assuming they are all in agreement.
Can a trustee be compensated for their service and reimbursed for any expenses?
Consistent with Massachusetts law prior to the MUTC, trustees are entitled to reasonable compensation for their services. Also consistent with prior law is the fact that trustees are entitled to reimbursement for expenses properly incurred in the trust administration, or to avoid unjust enrichment of the trust.
In many areas, the MUTC has restated existing Massachusetts trust law; in other areas, existing law was changed in favor of the approach suggested by the drafters of the uniform code. Importantly, there is broad agreement that enactment of the Massachusetts Uniform Trust Code makes trust law more efficient for those drafting trusts and for those who benefit from them.