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LIST OF APPENDIXED TRUST FORMS
Trust Forms And Explanatory Notes |
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1. Document "A"--Notice To Qualified Beneficiary Of Proposed Transfer
Of Principal Place Of Trust |
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A. Acceptance-rejection of trusteeship:
1. Acts of trusteeship acceptance--Except as otherwise provided in subsection C (below), a person designated as trustee accepts the trusteeship by either (C.O.V. §55-547.01A):
a. substantially complying with the method of acceptance as provided in the terms of the trust, (C.O.V. §55-547.01A 1), or
b. if the terms of the trust do not provide a method of acceptance, or the method of acceptance is not expressly made exclusive, then by (C.O.V. §55-547.01A 2):
i. accepting delivery of trust property, or ii. exercising powers of trusteeship, or iii. performing duties as trustee, or iv. otherwise indicating acceptance of the trusteeship;
2. Action taken to preserve trust property is not deemed trustee acceptance if, within a reasonable time after acting, the designated trustee (C.O.V. §55-547.01C 1):
a. sends a rejection of the trusteeship to the settlor or,
b. sends a rejection of the trusteeship to a qualified beneficiary if the settlor is deceased, or lacks capacity, or
c. acts merely to inspect or investigate trust property to determine potential liability under environmental or other law or for any other purpose (C.O.V. §55-547.01C 2).
3. Right of trustee to reject trusteeship--A designated trustee who has not accepted the trusteeship may reject it (C.O.V. §55-547.01B);
4. A trustee who knows of the trustee designation, and does not accept it within a reasonable time, is deemed to reject it (C.O.V. §55-547.01B).
B. Trustee bond requirements-
1. When trustee bond is required--Except as otherwise provided in Title 26 (FIDUCIARIES GENERALLY), a trustee shall give bond, or bond with surety or other security, to secure the trustee's duties only if (C.O.V. §55-547.02A):
a. the court finds that a bond is needed to protect the interests of the beneficiaries, or
b. is required by the terms of the trust, and the court has not dispensed with that bond requirement;
2. The court has power to specify, modify or terminate bond--The court may at any time (C.O.V. §55-547.02B):
a. specify the amount of a bond, its liabilities and whether sureties are necessary; and
b. modify the bond, and
c. terminate the bond.
3. Trustees who are exempt from providing bond--A regulated financial-service institution qualified to do trust business in the Commonwealth need not provide bond, even if required by the terms of the trust (C.O.V. §55-547.02C).
C. Cotrustees--
1. Cotrustees who cannot reach a unanimous decision may act by majority decision (C.O.V. §55-547.03A);
2. If a vacancy occurs in a cotrusteeship, the remaining cotrustee(s) may act for the trust (C.O.V. §55-547.03B);
3. Cotrustee's active participation required, exceptions--A cotrustee shall participate in the performance of a trustee's function unless that cotrustee (C.O.V. §55-547.03C):
a. is unavailable to perform the function because of:
i. absence, ii. illness, disqualification under other law or other temporary incapacity, or
b. has properly delegated the performance of the function to another trustee;
4. Cotrustee action for absent, ill, disqualified cotrustee--If a cotrustee is unavailable to perform duties due to absence, illness, disqualification under other law, or other temporary incapacity, and prompt action is necessary to achieve the purposes of the trust, or to avoid injury to the trust property, the remaining cotrustee or a majority of the remaining cotrustees may act for the trust (C.O.V. §55-547.03D);
5. Trustee delegation to cotrustee--A trustee may delegate to a cotrustee the performance of any function unless terms of the trust provide that the trustees perform jointly (C.O.V. §55-547.03E);
6. Revocation of delegation to cotrustee--Unless a delegation was irrevocable, a trustee may revoke a delegation previously made (C.O.V. §55-547.03E);
7. Nonliability of cotrustee for nonaction--Except as otherwise provided in subsection G (below), a trustee who does not join in an action of another trustee is not liable for the action (C.O.V. §55-547.03F);
8. Cotrustee duty to control other cotrustee(s)--Each trustee shall exercise reasonable care to (C.O.V. §55-547.03G):
a. prevent a cotrustee from committing a serious breach of trust (C.O.V. §55-547.03G 1) and,
b. compel a cotrustee to redress a serious breach of trust (C.O.V. §55-547.03G 2);
9. Nonliability of dissenting cotrustee--A dissenting trustee who joins in an action at the direction of a majority of trustees and who notified any cotrustee of the dissent at or before the time of the action, is not liable for the action unless the action is a serious breach of trust (C.O.V. §55-547.03H).
D. Trustee vacancy--
1. When trustee vacancy occurs--A vacancy in a trusteeship occurs whenever the designated trustee (C.O.V. §55-547.04A):
a. rejects the trusteeship (C.O.V. §55-547.041A 1), or
b. cannot be identified (C.O.V. §55-547.04A 2), or
c. does not exist, (C.O.V. §55-547.04A 2), or
d. resigns, (C.O.V. §55-547.04A 3), or
e. is disqualified or removed (C.O.V. §55-547.04A 4), or
f. dies, (C.O.V. §55-547.04A 5), or
g. is adjudicated an incapacitated person (C.O.V. §55-547.04A 6);
2. A co-trustee vacancy need not be filled where one or more co-trustee(s) remain (C.O.V. §55-547.04B);
3. A trustee vacancy must be filled where no trustee remains (C.O.V. §55-547.04B);
4. Priority of filling trustee vacancy in a noncharitable trust--Where a vacancy in the trusteeship of a noncharitable trust must be filled, the successor trustee is appointed in the following order of priority (C.O.V. §55-547.04C):
a. by the successor trustee designated in the trust instrument (C.O.V. §55-547.04C 1);
b. by the trustee appointed through unanimous agreement of qualified beneficiaries (C.O.V. §55-547.04C 2);
c. by a person appointed by the court pursuant to (C.O.V. §55-547.04C 3):
i. §26-48 and §26-50:
(A) C.O.V. §26-48 (Court may appoint trustee in place of one dead, resigned, etc.") provides that when a trustee in a will, deed, or other writing (i) dies, (ii) becomes incapable of executing a trust due to physical or mental disability or prison confinement, (iii) is absent from Virginia when residency is required, (iv) declines the trust, (v) accepted but thereafter permissibly rejected the trust, (vi) is a bankrupt corporate trustee or otherwise loses its charter, or (vi) otherwise ceases to be eligible for or to continue serving as trustee, or (vii) for other good cause shown, then the circuit court where the will is admitted to probate, or where the deed or other writing may have been recorded, or where a corporate trustee's principal Virginia office is located, or where the trustee resides, may on motion of any interested party, and on satisfactory evidence of the circumstances regarding the trustee vacancy, appoint a trustee in place of that trustee; it also allows the court to appoint a substitute corporate trustee whenever that trustee moves its management function to a jurisdiction out of Virginia, where such appointment creates good cause for the appointment of a substituted trustee--however, where that corporate trustee nonetheless maintains a place of business in the Commonwealth where one or more trust officers are available on a regular basis for personal contact with trust customers or beneficiaries, then no such substituted trustee appointment is necessary;
(B) C.O.V. §26-50 ("Notice required; certain substitutions validated") provides the procedure for notice required for motions under §26-48 (see above); and particularly, designates a method for substituted notice for minors, incapacitated persons and convicts and the necessary appointment of representatives therefor; it also waives notice to a trustee or substituted trustee who has left the state, or declined or resigned the trusteeship, or to a personal representative of a deceased trustee, or to a bankrupt or charter-revoked corporate trustee; it also provides a rule for notice to a substituted trustee or a deed of trust;
ii. §55-542.05 ["Proceedings to appoint or remove trustees"]--see below--or;
5. Priority of filling trustee vacancy in a charitable trust--A vacancy in the trusteeship of a charitable trust that must be filled is satisfied in the following order of priority (C.O.V. §55-547.04D):
a. by the successor trustee designated in the trust instrument (C.O.V. §55-547.04D 1);
b. by a person selected by the charitable organizations expressly designated to receive trust distributions, subject however to the concurrence of the Attorney General in any case in which he has previously requested of an organization so designated that he be consulted regarding the selection of a successor (C.O.V. §55-547.04D 2),
c. by a person appointed by the court pursuant to (C.O.V. §55-547.04D 3):
i. §26-48 and §26-50,--see description in D. 4. c. i. directly above-or ii. §55-542.05 ["Proceedings to appoint or remove trustees"]-- see below;
6. Court appointment of an additional trustee or special fiduciary if necessary--Whether or not a vacancy in a trusteeship exists, or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust (C.O.V. §55-547.04E)
7. Successor or surviving trustee obtains all rights, powers, privileges duties etc. as original trustee--A successor or surviving trustee shall, without regard to the nature of discretionary powers conferred by the instrument, succeed to (C.O.V. §55-547.04F):
a. all rights, powers, and privileges, and
b. shall be subject to all the duties, liabilities, and responsibilities imposed upon the original trustee unless:
i. the trust instrument expressly provides to the contrary, or
ii. unless an order appointing the successor trustee provides otherwise.
E. Trustee resignation--
1. When a trustee may resign--A trustee may resign either (C.O.V. §55-547.05A):
a. On at least 30 day's notice to all of the following (C.O.V. §55-547.05A 1):
i. the living settlor, and ii. all cotrustees, and ii. the qualified beneficiaries--except those qualified beneficiaries under a revocable trust which the settlor has capacity to revoke; or
b. With court approval (C.O.V. §55-547.05A 2);
2. Additional court orders available when approving trustee resignation--In approving a trustee resignation, the court may issue orders and impose conditions reasonably necessary for the protection of the trust property (C.O.V. §55-547.05B);
3. Trustee resignation does not affect trustee or surety liability--The trustee's resignation does not discharge or affect that trustee's liability to sureties or on the trustee's bond for acts or omissions of that trustee (C.O.V. §55-547.05C).
F. Trustee removal--
1. Court removal of trustee on settlor's, co-trustee's, beneficiary's or attorney general's request--A settlor, cotrustee or beneficiary, or, in the case of a charitable trust, the Attorney General may petition the court to remove a trustee (C.O.V. §55-547.06A);
2. Removal of trustee on court's initiative--A trustee may be removed by the court on its own initiative (C.O.V. §55-547.06A);
3. Conditions for court removal of trustee--The court may remove a trustee if (C.O.V. §55-547.06B):
a. the trustee has committed a serious breach of trust (C.O.V. §55-547.06B 1), or
b. lack of cooperation among cotrustees substantially impairs trust administration (C.O.V. §55-547.06B 2), or
c. trust administration is impaired by trustee unfitness, unwillingness or persistent trustee failure to effectively administer the trust and trustee removal best serves the trust beneficiaries' interest, (C.O.V. §55-547.06B 3), or
d. there has been a substantial change of trust circumstances (C.O.V. §55-547.06B 4), or
e. all qualified beneficiaries request removal, and the court finds that (C.O.V. §55-547.06B 4):
i. trustee removal best serves all of the beneficiaries, and, ii. is not inconsistent with a material purpose of the trust, and iii. a suitable cotrustee or successor trustee is available.
4. Court authority to protect trust assets, etc., while deliberating trustee removal--Pending final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order appropriate relief under Section 55-550.01 ("Remedies for breach of trust") as may be necessary to protect the trust property or the interests of the beneficiaries (C.O.V. §55-547.06C).
G. Delivery of property by former trustee--
1. Residual duties and powers of former trustee(s) until trust property delivered--A resigned or removed trustee retains the duties and protective powers of a trustee until delivery of trust property to a successor trustee or other person entitled to it, unless (C.O.V. §55-547.07A):
a. a cotrustee remains in office, or
b. the court orders otherwise.
2. Duty of resigned, removed trustee to deliver trust property--A resigned or removed trustee shall expeditiously deliver trust property within that trustee's possession to the cotrustee, successor trustee, or other person entitled to it (C.O.V. §55-547.07B);
3. Vesting of title to accepting successor trustee without prior conveyance--Title to all trust property shall be owned and vested in any successor trustee, upon acceptance of the trusteeship, without any conveyance, transfer or assignment by the prior trustee (C.O.V. §55-547.07C).
H. Trustee compensation--
1. Generally--reasonable under the circumstances--If the terms of the trust do not specify trustee compensation, it shall be reasonable under the circumstances (C.O.V. §55-547.08A);
2. Trust specified trustee compensation is valid and circumstances when such compensation is subject to court review--If the trust specifies compensation, the trustee is entitled to that compensation, but the court may allow more or less compensation if either (C.O.V. §55-547.08B):
a. the trustee duties are substantially different from those contemplated when the trust was created, (C.O.V. §55-547.08B 1), or
b. trust specified trustee compensation would be unreasonably low or high (C.O.V. §55-547.08B 2).
I. Trustee reimbursement for expenses--
1. Proper trustee reimbursement for expenses, with interest--The trustee is entitled to be reimbursed out of trust property with interest as appropriate for (C.O.V. §55-547.09A):
a. properly incurred trust administrative expenses (C.O.V. §55-547.09A 1), and
b. expenses payable to prevent unjust enrichment even though they were not properly incurred trust expenses (C.O.V. §55-547.09A 2);
2. Trustee lien and interest for advances that protect trust property--A trustee's advance of money to protect the trust gives the trustee a lien against trust property to secure reimbursement with reasonable interest (C.O.V. §55-547.09B).
Commissioners' Introductory Commentary to Uniform Trust Code Article 7 "Office of Trustee" describes this section as contain[ing] "default rules dealing with the office of trustee", except for the court's authority to order bond [see U.T.C. 105(b)(6), (C.O.V. §55-541.05B 6)]. C.O.V. §55-547.01 Accepting or rejecting trusteeship--
§55-547.01A 1-2 provides that (except as provided in C below) a trusteeship is accepted when the designated trustee either (1) substantially complies with the method of acceptance provided by the terms of the trust; or (2) if no acceptance method is designated, or if that method is not expressly made exclusive, then by: (a) accepting delivery of trust property, (b) exercising trust powers, (c) performing duties as trustee, or (d) otherwise indicating trustee acceptance.
Uniform Trust Code commentary to U.T.C. §701 indicates that the rules involving trustee acceptance parallel the rules to determine whether a trust has been revoked and invites comparison between U.T.C. §701(a) and 602(c) ["Methods by which settlor may revoke or amend a revocable trust"]. Acceptance of the duties of the trustee under the subsection requires only substantial, not literal or technical, compliance with the acceptance method provided in the trust instrument. Thus for instance, a signed trust acceptance is valid even though the notary's signature is missing, because it substantially complies with the method of acceptance. Ordinarily, the trust will require the trustee to sign a written instrument of acceptance, however, this section permits other methods which sufficiently demonstrate the necessary intent, such as knowingly exercising trustee powers, unless the trust instrument makes a certain method of acceptance exclusive. This section does not preclude trustee acceptance by estoppel. Additional information about trustee acceptance or rejection is found in §102 Restatement (Second) of Trusts (1959) & §35 Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). The court is not required to confirm the appointment of any trustee which is consistent with the general rule in U.T.C. §201(b) [C.O.V. §55-542.01B "Role of court in administration of trust"] which dispenses with court supervised trust administration.
Restatement Of The Law Third, Trusts (2001) And U.T.C. §701 "Accepting or rejecting trusteeship"--As indicated in the commentary to U.T.C. §701, §35, "Acceptance or Renunciation of Trusteeship" provides further information regarding trustee acceptance or rejection.
§35 Acceptance or Renunciation of Trusteeship:
(1) A designated trustee may accept the trusteeship either by words or by conduct.
(2) A designated trustee who has not accepted the trusteeship may decline it."
Comment a. ("Scope of Section") provides that until acceptance, no one can be forced to be a trustee. This rule is different from: (i) trustee resignation after acceptance (see §36, ["Resignation of Trustee"), discussed at U.T.C. §705 (C.O.V. §55-547.05) below]), (ii) trustee disclaimer of property to be transferred in trust or (iii) trustee disclaimer of specific trustee powers (see §85, ["Extent of Trustees' Powers", discussed at U.T.C. §815 (C.O.V. §55-548.15) below] and §70, ["Powers an Duties of Trustees"], discussed at U.T.C. §815(b) (C.O.V. §55-548.15B) below]). Also, a trustee's renunciation of the trusteeship is different than a disclaimer for tax purposes under I.R.C. §2518. Comment b. ("Manifestation of intention to accept or decline") does not require any particular formality to refuse the trusteeship; this is also the case for trusteeship acceptance unless the trust terms so require. Thus trust acceptance can be manifested orally or be inferred by conduct. Whether such assent occurs is a question of fact. However, dealing with trust property in a manner proper only to the trustee exhibits acceptance, while acting solely to protect such property is not. Failure to accept trusteeship for a long period usually shows an intention to decline it. Where a promise is made to accept trusteeship prior to the trust's existence, the promisor may reject the office; however, failure to accept the duties for a long time period does not infer rejection. Where the trustee is unusually long in rejecting the trust, a court may penalize the proposed trustee where the conduct harms beneficiaries "who reasonably relied on the designated trustee to protect their interests." Comment c. ("Withdrawal of renunciation") indicates that once a trustee renounces the office he cannot effectively withdraw the renunciation unless the settlor accepts. For a testamentary trust, the court may accept withdrawal of a renunciation during administration if it would "not prejudice the interests of the beneficiaries." Comment d. ("Partial renunciation") allows a person designated as both the executor and trustee under will, to accept one office and reject the other, unless the testator exhibits a contrary intention. Similarly, if two trusts are created, one office may be accepted and the other rejected, unless contrary to the settlor's purposes or proper trust administration.
§55-547.01B states that a designated trustee who has not yet accepted the trusteeship, may reject it; and a designated trustee who does not accept the trusteeship within a reasonable time, and who knows of the designation, is deemed to reject it.
Uniform Trust Code commentary to U.T.C. 701 provides that due to concern about inaction which results if a trustee does not communicate acceptance or rejection, this provision directs that if acceptance is not made in a reasonable time, the office is deemed to be rejected. "Reasonable time" depends on the circumstances of a particular case, including the degree of harm that may occur if a trustee does not timely act. A trustee's rejection precludes later acceptance but does not cause the trust to fail--specifically referring to §35 comment c. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). If the trusteeship is rejected, U.T.C. §704 [C.O.V. §55-547.04 "Vacancy in trusteeship; appointment of successor"] provides the default rule for the replacement. A designated trustee who does not accept the office does not need to provide a formal rejection, but clear communication of the intent not to accept is recommended. The person to whom such noticed should be sent depends on the circumstances; thus optimally such notice should be given to the person who notified the designatee of his or her selection. If judicial proceedings are pending, the rejection should be filed with the court. If the trust is revocable, rejection should be sent to the settlor if he or she has capacity. Another option would be to notify any beneficiary with a significant interest since that beneficiary is more likely to ensure that a successor trustee is appointed.
Restatement Of The Law Third, Trusts (2001) And U.T.C. §701 "Accepting or rejecting trusteeship"--See the discussion of §35, Comment c., directly above.
§55-547.01C 1-2 allows the designated trustee, without accepting the trusteeship, (1) to act to preserve trust property, if within a reasonable time after acting, the trustee sends a rejection of the trusteeship to the settlor, if living, or if not, to a qualified beneficiary, and (2) to inspect or investigate trust property to determine potential liability under environmental or other law or for any other purpose.
Uniform Trust Code commentary to U.T.C. §701 indicates that this subsection allows the trustee to act promptly to protect trust property without accepting the trusteeship. Also, because of significant potential tort liability under CERCLA, 42 U.S.C. §9607, for a trust holding property tainted with hazardous materials, the nominated trustee may inspect or investigate such property without accepting the trusteeship. U.T.C. §1010(b) (C.O.V. §55-550.10B "Limitation of personal liability of trustee") limits trustee liability for trust property including for violations of environmental law. [See also trustee powers regarding inspection of trust property for environmental law hazards in C.O.V. §55-548.16 13-ed.].
C.O.V. §55-547.02 Trustee's bond--
§55-547.02A indicates that except as otherwise provided in Title 26 [FIDUCIARIES GENERALLY] a trustee bond, or bond with surety or other security, is required only if the court finds bond is necessary to protect the beneficiaries' interests, or is required by the terms of the trust and the court has not dispensed with that requirement.
§55-547.02B gives the court authority to specify the amount of bond, its liabilities and whether sureties are necessary; and the court may also modify or terminate bond at any time. §55-547.02C provides that a regulated financial-service institution qualified to do trust business in the Commonwealth is not required to give bond even it the terms of the trust require it. Uniform Trust Code commentary to U.T.C. §702 indicates that the court's bonding authority described in this subsection is similar to §34(3) and comment a. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999) and Uniform Probate Code §3-604 for personal representatives ("Bond amount; security; procedure; reduction"); Uniform Probate Code §5-415 "Bond; exception") for conservators; and Uniform Probate Code §7-304 for trustees (see generally Title 26, Chapter 1 "Bonds and Liabilities of Fiduciaries"--C.O.V. §55-26-1--26-7.4-ed.). However bond should rarely be required since it is necessary only where required by the trust instrument or where the court determines it is necessary to protect the interest of beneficiaries. Further, U.T.C. §105(b)(6) [C.O.V.§55-541.05 6], does not permit the terms of the trust to supersede the court's inherent authority to set bond. However, the court should order bond only for good reasons and, similarly, should rarely dispense with bond if the settlor requires it. Although the section does not provide technical direction about trustee bonds, this information is given in the Uniform Probate Code sections described above. Accordingly, bond may be reduced if property is deposited in a manner that prevents unauthorized disbursement or conveyance unless the court approves otherwise, see Uniform Probate Code §5-415 allowing for reduction in conservator bond for the "value of the securities deposited under arrangements requiring an order of the court for their removal and the value of any land which the fiduciary, by express limitation of power, lacks power to sell or convey without court authorization." The court also has power to excuse, modify, reduce or increase an ordered bond or release a surety or permit substitution of another bond with the same or different sureties. Because regulated financial institutions must meet detailed financial responsibility requirements as a condition for doing business in the state, they are not required to post bond. Restatement Of The Law Third, Trusts (2001) And U.T.C. §702 "Trustee's bond"--The commissioners' commentary to U.T.C. §702, refers further to §34(3), "Appointment of Trustees" and Comment a. ("When court appointment necessary for bonding") as being similar to this section. §34 Appointment of Trustees: " (1) Except as required by statute, a trustee designated by or selected in accordance with the terms of a trust may act without being appointed or confirmed by an order of court." (2) If the appointment of a trustee is not provided for or made pursuant to the terms of the trust, the trustee will be appointed by a proper court. (3) A trustee need not provide a performance bond except as required by statute, trust provision, or court order."
Comment a. ("When court appointment necessary: bonding") provides that some statutes require that testamentary trustees be court appointed just as are personal representatives. Nevertheless, these statutes do not invalidate acts of the trustee who later fails to obtain court appointment. Thus these acts result in trust acceptance and attainment of trustee obligations. In Illustration 1, the testamentary designated trustee sells trust property before her court appointment--the sale is valid even though she had not yet been appointed by the court.
Comment a(1). ("Bond of trustee") indicates that a trustee does not need to provide bond unless the trust's terms or statute or "unless ordered by court upon a finding that bonding is necessary to protect the interests of the beneficiaries." However, a court order may be reviewed for abuse but is not forbidden by a trust provision indicating that no bond is required. Trust bonds are payable by the trust. C.O.V. §55-547.03 Cotrustees--
§55-547.03A permits cotrustees who cannot act unanimously to act by majority decision.
Uniform Trust Code commentary to U.T.C. §703 indicates that this section contains most of the code's provisions dealing with cotrustees. Its provision permitting cotrustees to act by majority decision is the same as §39 Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). While this rule rejects the common law requiring trustee unanimity of action for private trusts--specifically referring to §194 Restatement (Second) of Trusts (1959), it is consistent with law allowing majority rule for charitable trusts--specifically referring to §383 Restatement (Second) of Trusts (1959). The advantage of cotrusteeship includes avoiding eccentricity or misconduct of a single trustee; multiplying differing management skills; and providing multiple representation of the interests of different family group beneficiaries. However, cotrustees can also create confused accountability and create management deadlock unless an odd number of trustees are appointed and majority rule applies. Avoiding these problems is best left for the settlor to address under the terms of the trust which is permitted in U.T.C. §105(b) [C.O.V. §55-541.05B "Default and mandatory rules"]. Other provisions dealing with cotrustees include U.T.C. §704 [C.O.V. §55-547.04[B]], precluding the need to fill a cotrustee vacancy where a trustee remains; U.T.C. §705 [C.O.V. §55-547.05[A]] requiring notice of resignation to be given to a cotrustee; U.T.C. §707 [C.O.V. §55-547.07] stating obligations of a resigning or removed trustee; U.T.C. §813 [C.O.V. §55-548.13] directing accounting requirements upon trustee vacancy; and U.T.C. §1013 [C.O.V. §55-550.13[A 6]] authenticating trust document by cotrustees.
Restatement Of The Law Third, Trusts (2001) And U.T.C. §703 "Cotrustees"--The commentary to U.T.C. §703, refers further to §39, "Exercise of Powers by Multiple Trustees", which permits cotrustees to act by majority. §39 Exercise of Powers by Multiple Trustees: "Unless otherwise provided by the terms of the trust, if there are two trustees their powers may be exercised only by concurrence of both of them, absent an emergency or a proper delegation; but if there are three or more trustees their powers may be exercised by a majority."
Comment a. ("Basic rule and rationale") requires two trustees to agree to exercise trustee powers; and for three or more trustees, majority rule governs; however, "when feasible all trustees must be consulted before decisions are made". These rules apply at the time of trustee action and not according to the original number or trustees. The commentary notes that originally, trustee majority rule applied only to charitable trusts, however, "sound and efficient administration", require application of the rule to private trusts as well. This section also protects a dissenting trustee from liability for the majority's acts, "while preserving the co-trustee's duty normally to participate in deliberations and decision making and to act reasonably to prevent a breach of trust." Thus in Illustration 1, 3 of the 5 trustees agree to convey trust property--absent contrary trust language, the action is proper and if the action is a breach of trust, the nonjoining trustees are protected unless they acted unreasonably in not preventing the breach by initiating court action, etc. In Illustration 2, a deed is signed by only 1 of 2 trustees--the deed is subject to rescission with the beneficiary's rights unaffected. In Illustration 4, the trust began with 5 trustees but one died--action by the 4 remaining cotrustees requires assent by 3; and if another trustee dies, majority rule governs.
Comment b. ("Ratification or acquiescence by co-trustee") provides that action by one trustee is valid with the consent of the other trustee; and if one trustee acts, the other's consent by ratification is valid. Thus a deed signed by one trustee with the consent of the other is valid; and if the nonacting trustee did not know of the conveyance, he may validate it by later ratification (which includes failure to object to the action within a reasonable time). Comment c. ("Emergencies") states that "[I]f an action important to the purposes of the trust is required by an emergency to be carried out before consent can be obtained from the other trustee(s) or from the court, one or more of multiple trustees (including a majority of the available trustees) can properly exercise powers conferred upon the trustees." Comment d. ("Delegation") directs that a trustee may validly act pursuant to a "proper" delegation by another cotrustee(s), see §81, ["Duty With Respect to Co-Trustees"--which essentially provides (1) that each multiple trustee has the right and duty to participate in trust administration unless the trust's terms provide otherwise and (2) that each trustee must use reasonable care to prevent a cotrustee from committing a breach of trust and if one occurs, "to obtain redress".] Comment e. ("Breaking deadlocks") indicates that an action by deadlocked trustees may be resolved by a cotrustee's or trust beneficiary's application to court. Thus where two trustees cannot agree on which charities to make distribution, unless no action is appropriate, the court may select the charities among the trustees' list or appoint a temporary or third trustee (or trustee ad litem) to exercise the power. Comment f. ("Terms of the trust") allows the rule in §39 to be altered under the terms of the trust. [See U.T.C. §105, C.O.V. §55-541.05B 1-11 regarding primacy of terms of the trust--ed.].
§55-547.03B directs that where a cotrustee vacancy occurs, the remaining cotrustee(s) may continue to act.
Uniform Trust Code commentary to U.T.C. §703 provides that the subsection allows a majority of remaining trustees to act when a trustee vacancy occurs; U.T.C. §704 [C.O.V. §55-547.04 "Vacancy in trusteeship; appointment of successor"] also directs that a vacancy in a trusteeship needs to be filled only if no trustee remains. Editor commentary--See restatement Trusts, Third §34, ["Appointment of Trustees"], Comment d. [("Judicial power: remaining co-trustee")] adopting the rule that where there are several trustees and one of them dies, declines to serve, resigns, etc., "a replacement trustee is required only if the settlor manifested an intention, or it is conducive to proper administration or purposes of the trust, that the number of trustees should be maintained." §55-547.03C requires each cotrustee to actively participate in trust management unless the cotrustee is unavailable to act due to absence, illness, legal disqualification, temporary incapacity, or where the cotrustee's duty has been properly delegated to another trustee. Uniform Trust Code commentary to U.T.C. §703 indicates that excusing a cotrustee from active participation due to legal disqualification would include disqualification under federal securities law or E.R.I.S.A. prohibited transaction rules--specifically referring to §405 (29 U.S.C. §1105). Editor comment--See also Restatement Trusts, Third (2007), §81, "Duty with Respect to Co-Trusees"--right of trustee to participate in trust-- Comment c. ("Active personal participation: general rule") which states that consistent with Restatement Third, Trusts §76, "Duty to Administer the Trust in Accordance with its Terms and Applicable Law", each cotrustee "has a duty, and also the right, to active prudent participation in the performance of all aspects of the trust's administration." Included in that concept is the duty of cotrustee cooperation. Active participation in trust administration does not, however, prevent a cotrustee from prudently delegating trustee duties to agents (see §80, "Duty with Respect to Delegation"), discussed at U.T.C. 807 (C.O.V. §55-548.07) above--, or to other cotrustees (pursuant to §81, Comment c(1). ("Delegation to other co-trustee(s)"), see C.O.V. §55-547.03 "Cotrustees" Comment d. ("Delegation") above. Moreover, active trustee participation "does not require an equal level of effort or activity by each co-trustee". Thus they may allow a given cotrustee "to carry more of the burden in regard to various matters, for example by initiating, analyzing, reporting, and making recommendations for reasonably informed action by all of the trustees"; but this does not allow them to "divide[ing] the trusteeship or its functions in a manner that is not authorized by the terms of the trust." Also, where the cotrustee "is unavailable to participate prudently in the performance of a trusteeship function because of absence, illness, or other temporary incapacity, or because of disqualification under other law, the co-trustee is excused from participation." Thus where action is necessary under these circumstances, the remaining cotrustee(s) can properly act. §55-547.03D provides that when a cotrustee is unavailable to act due to absence, illness, legal disqualification, or temporary incapacity, the other trustee or majority of remaining trustees are permitted to act where prompt action is necessary to achieve the trust's purpose, or to avoid harm to trust property. Editor comment--See Restatement Trusts, Third (2007), §81, "Duty with Respect to Co-Trusees", discussed in editor commentary above. §55-547.03E allows a trustee to properly delegate the performance of any trust function to another trustee(s) unless the trust terms expressly require joint trustee action; similarly, unless made irrevocable, any trustee delegation may be revoked. Uniform Trust Code commentary to U.T.C. §703 explains that delegation of cotrustee duties under this subsection is different from trustee delegation of functions to agents under U.T.C. §807 [C.O.V. §55-548.07 "Delegation by trustee"]. The trustee's delegation of functions to agents is encouraged particularly where the trustee must necessarily rely on the skills of professionals to efficiently administer the trust. Delegation under this subsection however recognizes that most of those chosen as cotrustees are not professionals and that the settlor specifically selected them to manage based on their individual personal judgment or insight about matters relevant to the particular trust. The commentary indicates that the degree to which a trustee may delegate functions to another trustee depends on the reasons a settlor appointed a given trustee. It encourages settlors to address this situation under the terms of the trust which is permitted under U.T.C. §105(b) [C.O.V. §55-541.05B]. This subsection is based on §171 Restatement (Second) of Trusts (1959). Editor comment--See Restatement Trusts, Third, (2007), §81, "Duty with Respect to Co-Trustees", Comment c(1)., ("Delegation to other co-trustee(s)") which provides that the general responsibility of a cotrustee to active participation in trust administration does not prevent that trustee to prudently delegate responsibilities "between or among themselves with respect to essentially ministerial matters such as the custody of trust property and the implementation of decisions that have been made by proper vote of the co-trustees." This includes delegation of responsibilities otherwise undertaken by a cotrustee who will be absent. (See discussion of Restatement Third, Trusts, in C.O.V. §55-547.03C above). §55-547.03F directs that except as provided in subsection G below a trustee who does not join in an action of another trustee is not liable for the action. Editor comment--See discussion of Restatement Trusts, Third (2001), §39, "Exercise of Powers by Multiple Trustees", Comment a. ("Basic rule and rationale") in C.O.V. §55-547.03C above. §55-547.03G 1-2 requires a trustee to exercise reasonable care (1) to prevent a cotrustee from committing a serious breach of trust and (2) to compel a cotrustee to redress a serious breach of trust. Editor comment--See discussion of Restatement Trusts, Third (2001), §39, "Exercise of Powers by Multiple Trustees", Comment a. ("Basic rule and rationale") in C.O.V. §55-547.03C above. §55-547.03H indicates that a dissenting trustee who joins an action at the majority's direction, and who notifies any cotrustee of the dissent at or before the time the action is taken, is not liable for that action unless it constitutes a serious breach of trust.
Uniform Trust Code commentary to U.T.C. §703 indicates that allowing cotrustees to act by majority, recognizes the possibility of trustee dissent. Dissenting trustees are generally protected from liability; and protection is also offered to trustees who refuse to join in an action. Thus a dissenting trustee who joined an action at the direction of the majority and who notifies any cotrustee of the dissent at or before the action is not liable unless the action taken represented a serious breach of trust. Both U.T.C. §703(f) & (h) do not protect the dissenting trustee from serious breach and U.T.C. §703(h) imposes liability on the dissenting trustee who does not act reasonably to correct "improper conduct." The responsibility to take action against a breaching cotrustee essentially adopts §184 & §224 Restatement (Second) of Trusts (1959).
Restatement Of The Law Third, Trusts (2001) And U.T.C. §703 "Cotrustees" --The commentary to U.T.C. §703, refers further to Restatement Trusts, Second §184, "Duty with Respect to Co-Trustees" which is contained in Restatement Third, Trusts, §39, "Exercise of Powers by Multiple Trustees", see generally, Comment a. ("Basic rule and rationale") in C.O.V. §55-547.03C above. C.O.V. §55-547.04 Vacancy in trusteeship; appointment of successor--
§55-547.04A 1-6 provides that a trustee vacancy occurs whenever the designated trustee (1) rejects the trusteeship, (2) does not exist or cannot be identified, (3) resigns, (4) is disqualified or removed, (5) dies, or (6) anyone serving as trustee is adjudicated an incapacitated person.
Uniform Trust Code commentary to U.T.C. §704 indicates that in the absence of the settlor specifying trustee succession in the terms of the trust under U.T.C. §105(b) [C.O.V. §55-541.05B], this subsection lists methods for filling trustee vacancies. Related provisions include U.T.C. §701 [C.O.V. §55-547.01 "Accepting or declining trusteeship]; U.T.C. §705 [C.O.V. §55-547.05 "Resignation of trustee"]; and U.T.C. §706 [C.O.V. §55-547.06 "Removal of trustee"]. An example of when such a vacancy might be filled is where a corporate trustee is disqualified under U.T.C. §704(a)(4) due to loss of its [Virginia] trust powers.
§55-547.04B directs that a cotrustee vacancy requires no successor trustee replacement unless no other cotrustee remains; but that a vacancy shall be filled if the trust has no remaining trustee.
Uniform Trust Code commentary to U.T.C. §704 provides that §704(b) does not require a cotrustee replacement when any other trustee remains to act. However, under U.T.C. §704(e) the court's inherent equity power permits it to appoint additional trustees if necessary to benefit trust administration, see also §108 Restatement (Second) of Trusts (1959) & §34 comment e. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). [See also U.T.C. §105(b)(13) (C.O.V. §55-541.05B (11)) which does not permit the settlor under the terms of the trust to diminish the "power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice." ed.].
Restatement Of The Law Third, Trusts (2001) And U.T.C. §704 "Vacancy in trusteeship; appointment of successor"--The commentary to U.T.C. §704, refers further to §34, "Appointment of Trustees", Comment e. ("Appointment of additional trustees") which states: "Even when there is no vacancy, a proper court may appoint one or more additional trustees, when this would promote better administration of the trust."
§55-547.04C 1-3 provides that for noncharitable trusts, vacancy appointments shall be made according to the following order of priority: (1) a trustee designated by the terms of the trust to act as successor trustee, (2) a trustee elected by unanimous consent of the "qualified beneficiaries", and (3) a court appointed trustee pursuant to §26-48 and §26-50 (see description below) or pursuant to §55-542.05 ("Proceedings to appoint or remove trustees").
C.O.V. §26-48 Court may appoint trustee in place of one dead, resigned, etc. provides that when a trustee in a will, deed, or other writing (i) dies, (ii) becomes incapable of executing a trust due to physical or mental disability or prison confinement, (iii) is absent Virginia when residency is required, (iv) declines the trust, (v) accepts but thereafter permissibly rejects the trust, (vi) is a bankrupt corporate trustee or otherwise loses its charter, or (vi) otherwise ceases to be eligible for or to continue serving as trustee, or (vii) for other good cause shown, then the circuit court where the will is admitted to probate, or where the deed or other writing may have been recorded, or where a corporate trustee's principal Virginia office is located, or where the trustee resides, may on motion of any interested party, and on satisfactory evidence of the circumstances regarding the trustee vacancy, appoint a trustee in place of that trustee; it also allows the court to appoint a substitute corporate trustee whenever that trustee moves its management function to a jurisdiction out of Virginia, and where such appointment creates good cause for the appointment of a substituted trustee--however, where that corporate trustee nonetheless maintains a place of business in the Commonwealth where one or more trust officers are available on a regular basis for personal contact with trust customers or beneficiaries, then no such substituted trustee appointment is necessary;
C.O.V. §26-50 Notice required; certain substitutions validated provides the notice procedure required for motions under §26-48 (see above) and particularly, designates a method for substituted notice for minors, incapacitated persons and convicts and the necessary appointment of representatives therefor; it also waives notice to a trustee or substituted trustee who has left the state, or declined or resigned the trusteeship, or to a personal representative of a deceased trustee, or to a bankrupt or charter-revoked corporate trustee; it also provides a rule for notice to a substituted trustee of a deed of trust. Uniform Trust Code commentary to U.T.C. §704 indicates that upon a vacancy in the trusteeship of a noncharitable trust, and absent a designation (or procedure for designation) in the trust instrument, "qualified beneficiaries" may unanimously appoint a trustee without court approval. If unanimous consent cannot be obtained, or if a nonqualified beneficiary under U.T.C. §706(a) [C.O.V. §55-547.06A "Resignation of trustee"] requests the court to set aside such unanimous appointment, then the court may act. In selecting a successor trustee, the court should consider the settlor's purpose and probable intention regarding proper trust administration and the beneficiaries' interest and desires--specifically referring to §108 comment d. Restatement (Second) of Trusts (1959) & §34 comment f. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Restatement Of The Law Third, Trusts (2001) And U.T.C. §704 "Vacancy in trusteeship; appointment of successor"--The commentary to U.T.C. §704, refers further to §34, "Appointment of Trustees", Comment f. ("Judicial power to fill vacancies") which provides: "Application to fill a vacancy in the trusteeship may be made by any beneficiary, the settlor, a continuing or retiring trustee, or a trustee who is named by the settlor but unwilling to serve as trustee; or by a person having an interest in the subject matter of the trust...or in the administration of the trust...; or in the case of a charitable trust,...the Attorney General."
§55-547.04D 1-3 directs that charitable trust vacancy appointments are made according to the following order of priority: (1) a successor trustee designated by the terms of the trust, (2) a trustee selected by the charitable organization(s) expressly designated to receive trust distributions, subject to attorney general consent if he has previously directed that organization to consult him regarding the selection of a successor trustee, (3) a court appointed trustee pursuant to §26-48 and §26-50 (see description in §55-547.04C 1-3 directly above), or pursuant to §55-542.05 ("Proceedings to appoint or remove trustees").
Uniform Trust Code commentary to U.T.C. §704 indicates that where a vacancy occurs in the trusteeship of a charitable trust, and absent direction in the trust instrument, the person selected by the charitable organization expressly designated to receive trust distributions, with the attorney general's consent, shall serve as successor trustee. If the trust instrument does not designate a trustee, or if the attorney general does not agree with the charitable distributee's selection, then court approval is required. [See C.O.V. §55-541.10 where the organization expressly designated to receive trust distributions and the attorney general are given the rights of "qualified beneficiaries"-ed.].
§55-547.04E directs that even where no trustee vacancy occurs or no trustee appointment is required, the court may appoint an additional trustee or a special fiduciary whenever that appointment is necessary to administer the trust. §55-547.04F provides that a successor or surviving trustee shall, without regard to the nature of discretionary powers conferred by the instrument, succeed to (a) all rights, powers, and privileges, and (b) shall be subject to all the duties, liabilities, and responsibilities imposed upon the original trustee unless the trust instrument expressly provides to the contrary, or unless an order appointing the successor trustee provides otherwise. Editor comment--C.O.V. §55-547.04F is not found in its U.T.C. counterpart. C.O.V. §55-547.05 Resignation of trustee--
§55-547.05A 1-2 allows a trustee to resign either (1) upon at least a 30 day notice to the living settlor, all cotrustees, and all "qualified beneficiaries" except those under a revocable trust which the settlor has capacity to revoke; or (2) with court approval. (See (C.O.V. §55-541.03 for a definition of qualified beneficiaries.)
Uniform Trust Code commentary to U.T.C. §705 provides that this subsection did not adopt the common law rule that a trustee may resign only with court permission; nor did it adopt the rule in the Restatement Of Trusts which allows such resignation only with the consent of beneficiaries--referring specifically to §106 Restatement (Second) of Trusts (1959) & §36 Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Instead, the default rule adopted coincides with standard drafting language authorizing trustee resignation as long as sufficient notice is given to those whose interests are affected. It also allows the trustee to seek court permission to resign. Note that under U.T.C. §603 [C.O.V. §55-546.03 "Settlor's powers; powers of withdrawal"] while the trust is revocable "and the settlor has capacity to revoke the trust" beneficiary rights and trustee duties are subordinate to the will of the settlor--[note, however, that Virginia did not adopt the clause "and while the settlor has capacity to revoke the trust" with respect to that directive--ed.]. The commentary further indicates that this subsection was amended in 2001 so that upon resignation trustee notice must be delivered to all living settlors of both revocable and irrevocable trusts.
Restatement Of The Law Third, Trusts (2001) And U.T.C. §705 "Resignation of trustee"--The commentary to U.T.C. §705, refers further to §36, "Resignation of Trustee" which provides: "A trustee who has accepted the trust can properly resign: (a) in accordance with the terms of the trust; (b) with the consent of all beneficiaries; or (c) upon terms approved by a proper court." (Note the rule in U.T.C. §705(a) does not permit trustee resignation with entire beneficiary consent.)
§55-547.05B provides that in approving any trustee resignation, the court may also issue orders and impose conditions reasonably necessary to protect trust property.
Uniform Trust Code commentary to U.T.C. §705 directs that §105(b)(13) [C.O.V. §55-541.05 (11)] would not allow trust language to deny the court's inherent power to impose conditions reasonably necessary to protect trust property when a trustee resigns.
§55-547.05C indicates a trustee's resignation does not discharge that trustee's (or his surety's bonded) liability for acts and omissions committed while in office.
Uniform Trust Code commentary to U.T.C. §705 indicates that the rule adopted in this subsection which denies a trustee the ability to avoid liability for misconduct during trust administration by the mere act of resigning, coincides with §106 comment b. Restatement (Second) of Trusts (1959) & §36 comment d. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Liability is also imposed on a trustee who resigns for the purpose of assisting a cotrustee to commit a breach of trust--citing Ream v. Frey, 107 F.3d 147 (3 Cir. 1997). Upon resignation the trustee must deliver trust property according to U.T.C. §707 [C.O.V. §55-547.07 "Delivery of property by former trustee"].
Restatement Of The Law Third, Trusts (2001) And U.T.C. §705 "Resignation of trustee"--The commentary to U.T.C. §705, refers further to §36, "Resignation of Trustee", Comment d. ("Liability and duties of resigning trustee") which provides that a "[R]esignation does not relieve the trustee from liability for breaches of trust committed prior to the time the resignation becomes effective." Also, that trustee has a duty to "administer and preserve the trust" until the successor takes on trustee duties. C.O.V. §55-547.06 Removal of trustee--
§55-547.06A allows any settlor, cotrustee or any beneficiary to request the court to remove a trustee; also, the court may remove a trustee on its own initiative;
Uniform Trust Code commentary to U.T.C. §706 indicates that contrary to common law, this subsection permits the settlor of an irrevocable trust to request the court to remove a trustee. However, this right does not give that settlor other rights such as authority to receive reports or other information regarding trust administration. Furthermore, the paramount rights of a (competent) settlor of a revocable trust under §603(a) [C.O.V. §55-546.03A] precludes any beneficiary's rights under this subsection to petition the court to remove a trustee. U.T.C. §105(b) [C.O.V. §55-541.05B] allows the terms of the trust to control trustee removal. The commentary also warns that a settlor of an irrevocable trust who does not want trust property to be included in that settlor's gross taxable estate should avoid retaining a taxable power to be appointed as trustee or to appoint a non-independent trustee, see Rev. Rul. 95-58, 1995-2 C.B. 191.
Appendix Document Reference: See Document N.
§55-547.06B 1-4 allows the court to remove a trustee (1) for committing a serious breach of trust, or (2) for lack of cotrustee cooperation which substantially impairs trust administration, or (3) due to trustee unfitness, unwillingness, or persistent failure to effectively administer the trust, the court concludes that trustee removal best serves the beneficiaries' interests, or (4) upon request by all "qualified beneficiaries", or due to substantial changes of circumstances, trustee removal becomes necessary and the court concludes that all of the following apply: (i) trustee removal serves the interests of all beneficiaries, and (ii) removal is "not inconsistent" with a material purpose of the trust, and (iii) a suitable cotrustee or successor trustee is available. (For a discussion of a "material trust purpose", see commentary to C.O.V. §55-544.11B; "qualified beneficiary is defined in C.O.V. §55-541.03).
Uniform Trust Code commentary to U.T.C. §706 indicates that the grounds for court removal of a trustee under this subsection are similar to §37 comment e. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Thus generally the court may remove a trustee for "untoward action" including a serious breach of trust but "the section is not so limited". The subsection also permits trustee removal for circumstances from which the court may conclude that the trust is not "best serving the interests of the beneficiaries". That term is defined in §103(7) [C.O.V. §55-541.03] as those provided in the terms of the trust. Also, conduct detrimental to the beneficiaries' interest is a long standing cause for trustee removal--referring specifically to §107 comment a. Restatement (Second) of Trusts (1959) & §37 comment d. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Consistent with §37 comments e. & g. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999), subsection (b)(1) directs that the trustee may be removed for only "serious" trust breaches; most notably for not keeping beneficiaries reasonably informed about trust administration so they can protect their interests as required by U.T.C. §813 [C.O.V. §55-548.13]. A serious breach may involve one action or a series of smaller actions which together result in harm. Subsection (b)(2) deals with trustee removal for lack of cooperation among trustees but only if it substantially impairs trust administration. Trustee reduction to avoid evenly numbered trustees to prevent continued voting deadlock may be appropriate. As long as trustee removal leaves at least one trustee remaining, U.T.C. §704 [C.O.V. §55-547.04B] would not require appointment of a successor trustee. Note, however, the subsection does not deal with the removal of a trustee who personally conflicts with the beneficiaries, which is usually not in itself a ground for trustee removal. However, if such discord results in a deterioration of communication between them, removal may be required--referring specifically to §37 comment e. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Subsection (b)(3) permits the court to remove a trustee for unfitness, unwillingness, or persistent failure to administer the trust effectively, but only if it serves the best interests of the beneficiaries as objectively defined in §103(7) [C.O.V. §55-541.03], namely, as provided in the trust. Trustee removal for "unfitness" includes not only for mental incapacity but for basic inability to manage the trust. Before removal for unfitness occurs the court should review whether the problem can be corrected by delegating duties the trustee is personally unable to perform. Trustee "unwillingness" includes both refusal to act and indifference to one or more beneficiaries--referring specifically to §107 comment a. Restatement (Second) of Trusts (1959) & §37 comment e. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). A "persistent failure to administer the trust" could include continuous poor investment management, especially when compared to comparable trusts. The commentary further indicates that it is usually harder to remove a trustee selected by the settlor rather than the court, especially where the settlor relies on both the trustee's individual judgment and familiarity with the trust's circumstances--referring specifically to §107 comment f.-g. Restatement (Second) of Trusts (1959) & §37 comment f. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). However, as indicated in subsection (b)(4), such deference lapses when important changes occur, such as the substantial change in the character of service or the trustee's location, in which case the settlor's reasons for selecting the trustee are diminished. The reorganization of a corporate trustee is not considered a changed circumstance where service to the account is not affected. However, before a trustee can be removed due to changed circumstances, the court must determine that the removal is "not inconsistent" with a material trust purpose, that removal best serves the interest of the beneficiaries and that a suitable cotrustee or successor trustee is available to serve. The subsection also allows court removal of a trustee if requested by all beneficiaries as long as the court concludes the trustee designation was not a material purpose of the trust. This provision is a corollary to U.T.C. §411 [C.O.V. §55-544.11 "Modification or termination of noncharitable irrevocable trust by consent"] which allows all beneficiaries to compel trust modification which is "not inconsistent" with the trust's material purpose. Before acting, the court must find that trustee removal will best serve the beneficiaries' best interests and that a suitable cotrustee or successor trustee is available. [For a discussion of "material trust purpose", see commentary to C.O.V. §55-544.11-ed.]. Restatement Of The Law Third, Trusts (2001) And U.T.C. §706 "Removal of trustee"--The commissioners' commentary to U.T.C. §706, indicates that this section is similar to §37, "Removal of Trustee", and comments d.-f. thereto, which provide as follows:
§37 Removal of Trustee:
"A trustee may be removed
(a) in accordance with the terms of the trust; or
(b) for cause by a proper court." Comment d. ("Removal by court; judicial discretion") directs that a court will remove a trustee whose service would harm the beneficiaries' interest (referring to Comment e. below). Trustee removal is discretionary with the court, subject to later review for abuse of that discretion. The court may act on its own or on the petition of the cotrustee, or any beneficiary or other interested party. The challenged trustee is entitled to notice and to be heard, but his powers may be suspended pending review, and a temporary trustee appointed. Comment e. ("Grounds for removal") provides that the trustee may be removed for any of the following: (i) lack of administrative capacity (see §32, ["Capacity of Individual to Be Trustee"), which provides: "A natural person, including a settlor or beneficiary, has capacity (a) to take and hold property in trust to the extent the person has capacity to take and hold the property as beneficial owner; and (b) to administer trust property and act as trustee to the same extent the person would have capacity to deal with the property as beneficial owner."]); (ii) unfitness for insolvency, inactivity, mental disability, substance abuse, lack of skill, or inability to understand fiduciary responsibility, conflict of interest (see Comment f(1). below); (iii)) inability/refusal to give required bond; (see §34, ["Appointment of Trustees", discussed at U.T.C. §702 (C.O.V. §55-547.02) below], Comment a. [("When court appointment necessary; bonding"]); (iv) refusal or delay in providing beneficiary accountings and related information (see §82, ["Duty to Furnish Information to Beneficiaries", discussed at U.T.C. §813 (C.O.V. §55-548.13) below] & §83, ["Duty to Keep Records and Provide Reports", discussed at U.T.C. § 810 (C.O.V. 55-548.10) below]; (v) criminal activity, including dishonesty; (vi) investment incompetency (see §§ 90-92, [i.e., Prudent Investor Rule (1991) §§227, 228, 229 discussed at XXIX below]; (vii) changes in trustee or beneficiary location "causing serious geographic inconvenience to the beneficiaries or to the administration of the trust"; (viii) "unwarranted preference to the interest of one or more beneficiaries"; (ix) neglect or indifference to beneficiary interests; and (x) "unreasonable or corrupt failure to cooperate with a co-trustee." The commentary acknowledges that this is not an exclusive list of causes to remove a trustee. Comment e(1). ("Friction between trustee and beneficiaries") indicates that trustee-beneficiary friction is not alone sufficient to remove a trustee unless it interferes with proper trust administration. Thus beneficiary resentment of property held in further trust or over the reasonable use of trustee discretion or poor investment performance is not sufficient for trustee removal. However, a "serious breakdown in [beneficiary] communications" may cause removal, especially if impaired (incurable) communication is trustee related. Comment f. ("Trustee named by settlor") states that the court is more reluctant to remove a settlor-named rather than a court or beneficiary appointed trustee since the trustee had significant reasons for selecting that trustee. Nonetheless, where there is sufficient cause for removal (see Comment e. above) the court will act. Comment f(1). ("Conflicting interests") directs that a trustee who is also a beneficiary (and holding discretionary distributive powers) is not sufficient to remove the trustee for conflict of interest. However, a conflict of interest of which the settlor was unaware when selecting the trustee, or which arose after selection, may give rise to trustee removal. Moreover, where the trustee is also a beneficiary, trustee administrative conduct will be subject to a higher standard of scrutiny (see §78, ["Duty of Loyalty", discussed at U.T.C. §802 (C.O.V. §55-548.02) below]; §87, ["Judicial Control of Discretionary Powers", discussed at U.T.C. 546 (C.O.V. §55-546.02C)] and §50, ["Enforcement and Construction of Discretionary Interests", discussed at U.T.C. 201 [C.O.V. §55-542.01] below], Comment c. [("Effect of extended discretion")]. A trustee who is remainder beneficiary and who has discretion to distribute income to the present beneficiary, may be removed as trustee, or denied appointment, where discretion conflicts with the trutee's duty of impartiality under §79, ["Duty of Impartiality"; Income Productivity"--discussed at U.T.C. §803 (C.O.V. §55-548.03) below]. See also Illustration 9 therein. Comment g. ("Alternatives to removal of trustee") provides that instead of removing a trustee, a court may take less drastic action related to improper trustee conduct. Thus the court may consider (i) appointing another trustee, (ii) appointing a trustee ad litem for litigation or sensitive matters, (iii) requiring additional bond to reduce insolvency questions; or (iv) appointment of a (different) suitable successor.
§55-547.06C directs that pending a final decision on a request to remove a trustee, or instead of, or in addition to removing a trustee, the court may also order other appropriate relief under §55-550.01B as may be necessary to protect trust property or the interests of beneficiaries. (C.O.V. §55-550.01 "Remedies for breach of trust") grants the court broad authority to remedy any breach of trust by: compelling the trustee to act properly; enjoining the trustee from committing a breach; requiring the trustee to redress a breach by paying money or restoring property; ordering the trustee to account; appointing a special fiduciary to manage the trust; suspending the trustee; removing the trustee under C.O.V. §55-547.06; reducing or denying trustee compensation; subject to C.O.V. §55-550.12 ("Protection of person dealing with trustee") voiding a trustee's action; imposing a lien or constructive trust; tracing and recovering property wrongfully disposed of; or ordering other appropriate relief.
Uniform Trust Code commentary to U.T.C. §706 indicates that pending the court's decision to remove a trustee, or in addition to or instead of such removal, this subsection allows the court to order relief under U.T.C. §1001(b) [C.O.V. §55-550.01B] which lists court remedies for breach of trust. These include issuing an injunction against trustee action, or mandating action, appointing a special fiduciary, or awarding attorney's fees under U.T.C. §1004 [C.O.V. §55-550.04] as justice or equity may require.
C.O.V. §55-547.07 Delivery of property by former trustee--
§55-547.07A provides that a trustee who has resigned or been removed from office nonetheless has the duties of a trustee and retains the powers necessary to protect trust property, unless a cotrustee remains in office, or the property is delivered to a successor trustee or other person entitled to it, or the court orders otherwise.
§55-547.07B directs that any resigned or removed trustee must expeditiously deliver the trust property in that former trustee's possession to the cotrustee, successor trustee or other person entitled to it.
Uniform Trust Code commentary indicates that this section describes the "continuing authority and duty" of the resigned or removed trustee over trust property in possession until it is delivered to a successor. However, no continued authority exists, or is required, where a cotrustee remains in office. Similarly, where a cotrustee remains in office, that former trustee does not have to provide a final trustee report under U.T.C. §813(c) [C.O.V. §55-548.13 "Duty to inform and report"]. Also, during any period after the trustee has resigned or been removed and before a permanent successor trustee is appointed, the court has authority to appoint a trustee or special fiduciary if necessary for trust administration under U.T.C. §704(e) [C.O.V. §55-547.04E "Vacancy in trusteeship; appointment of successor"]. U.T.C. §705(b) [C.O.V. §55-547.05B "Resignation of trustee"] further allows the court, upon approval of a trustee resignation, to issue orders reasonably necessary for trust administration; while upon trustee removal, U.T.C. §706(c) [C.O.V. §55-547.06C "Removal of trustee"] and §1001(b)(5) [C.O.V. §55-550.01B 5 "Remedies for breach of trust"], permits the court to consider remedies for breach of trust including the appointment of a special fiduciary. The commentary further indicates that if a trustee dies or becomes legally incapacitated, the code does not require the trustee's personal representative, conservator or guardian to conclude that trustee's administration. However, either fiduciary may submit a trustee report under U.T.C. §813(c) [C.O.V. §55-548.13C] to limit that trustee's liability, since such liability continues until it is otherwise barred.
§55-547.07C provides that title to all trust property shall be owned and vested in any successor trustee, on acceptance thereof, without any conveyance, transfer or assignment by the prior trustee.
Editor comment--C.O.V. §55-547.07C is not found in its U.T.C. counterpart.
C.O.V. §55-547.08 Compensation of trustee--
§55-547.08A directs that if the terms of the trust do not specify a trustee fee, the trustee is entitled to compensation which is reasonable under the circumstances.
Uniform Trust Code commentary to U.T.C. §708 indicates that this section sets forth a standard of reasonable trustee compensation. Such factors include community custom; trustee skills, experience and facilities; time expended, size and character of trust property; degree of administrative difficulty, degree of responsibility and risk assumed, the nature of and costs rendered by others and the quality of services provided--referring specifically to §242 comment b. Restatement (Second) of Trusts (1959) & §38 comment c. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Most important of those attributes is the service actually performed and the responsibilities assumed. If the trustee has delegated significant duties to agents under U.T.C. §807 [C.O.V. §55-548.07 "Delegation by trustee"], the fee should be reduced accordingly. However, trustees who use their special skills are entitled to extra fees which otherwise would have been delegated--referring specifically to §242 comment d. Restatement (Second) of Trusts (1959) & §38 comment d. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Since the definition of trustee under U.T.C. §103(19) [C.O.V. §55-541.03] includes cotrustees, the combined cotrustee fee should not exceed what the reasonable single trustee would receive. However, the rule does not mean that all cotrustees are entitled to the same fee, since any fee depends individually on a "totality of the circumstances". Also, the reasons the settlor chose multiple trustees as well as the responsibility assumed by each and the services actually performed by them are relevant. Combined multiple trustee fees may be justifiably higher than for a single trustee because each trustee must participate in administration rather than delegate trustee duties which the settlor expected them to jointly perform--referring specifically to §38 comment i. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). Also, the trust may legitimately benefit from superior trust administration provided by joint deliberations.
The commentary also indicates that even though institutional trustees often base their fees on a published fee schedule, these fees are nonetheless subject to the same overall standard of reasonableness. While the courts usually uphold fees based on published fee schedules, this is not universally the case. One area of controversy relates to fees charged on trust termination, or transfer of trust assets to a successor trustee. Factors to determine the appropriateness of a termination fee include actual work performed, whether the fee is permitted under the terms of the trust, the extent to which the fee schedule set forth the circumstances in which the fee would be charged, whether the entire trustee fee from the beginning of the trustee's tenure, including the termination fee is reasonable, and general community standards regarding termination fees. The commentary then cites a number of representative cases: Cleveland Trust Co. v. Wilmington Trust Co., 258 A.2d 58 (Del. 1969); In re Trusts Under Will of Dwan, 371 N.W. 2d 641 (Minn. Ct. App. 1985); Mercer v. Merchants National Bank, 298 A.2d 736 (N.H. 1972); In re Estate of Payson, 562 N.Y.S. 2d 329 (Surr. Ct. 1990); In re Indenture Agreement of Lawson, 607 A. 2d 803 (Pa. Super. Ct. 1992); In re Estate of Ischy, 415 A. 2d 37 (Pa. 1980); Memphis Memorial Park v. Planters National Bank, 1986 Tenn. App. LEXIS 2978 (May 7, 1986); In re Trust of Sensenbrenner, 252 N.W. 2d 47 (Wis. 1977). The code does not also directly address the extent to which dual trustee fees may be charged, such as when a trustee hires its own law firm as trust counsel. Generally, the practice is permissible if the overall fees are reasonable--specifically referring to Ronald C. Link, Developments Regarding the Professional Liability of the Estate Administration Lawyer: The Effect of the Model Rules of Professional Conduct, 26 Real Prop. Prob. & Trust J. 1, 22-38 (1991).
§55-547.08B 1-2 directs that the trustee is entitled to trust compensation as specified in the terms of the trust; however, the court has authority to increase or decrease that compensation if (1) the trustee's duties are substantially different from those contemplated when the trust was created, or (2) the trust instrument-designated compensation would be unreasonably high or low.
Uniform Trust Code commentary to U.T.C. § 708 indicates that the terms of the trust may override the "reasonable compensation standard", subject to the court's "inherent equity power" to revise fees as reasonable. The commentary advises that compensation provisions should be drafted with care. Consideration should be given to whether the trust provision establishing trustee compensation binds a successor trustee; whether a beneficial gift under the trust to the trustee is instead of or in addition to a trustee fee; and whether a beneficial gift to the trustee is subject to the condition that the beneficiary act as trustee--specifically referring to §242 comment f. Restatement (Second) of Trusts (1959) & §38 comment e. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999).
U.T.C. §111(c)(4) [C.O.V. §55-541.11C 4 "Nonjudicial settlement agreements"] allows the trustee and beneficiaries to agree to trustee compensation without court intervention. However, a nonconsenting beneficiary is not bound; and under U.T.C. §111(d) [C.O.V. §55-541.11E] any "interested person" may petition for court intervention with respect to whether the agreement falls within the scope set forth in the statute--referring specifically to §242 comment i. Restatement (Second) of Trusts (1959) & §38 comment f. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). The trustee may also waive compensation but to avoid gift or income tax consequences should do so before rendering significant trust services before the waiver, citing Rev. Rul. 66-167, 1966-1 C.B. 20; & also §242 comment j. Restatement (Second) of Trusts (1959) & §38 comment g. Restatement (Third) of Trusts (Tentative Draft No. 2, approved 1999). U.T.C. §816(15) [C.O.V. §55-548.16 (15)] allows the trustee to fix and pay its compensation without court review but the beneficiaries may challenge that determination in court. Also, U.T.C. §813(b)(4) [C.O.V. §55-548.13B 4 "Duty to inform and report"] requires the trustee to give "qualified beneficiaries" at least 30 day written notice of a change in the trustee's "method or rate" of compensation, so they can protect their interests--[note Virginia's counterpart does not set a specific advance notice time frame regarding trustee compensation changes--ed.]. Failure to give such notification is a serious breach of trust warranting trustee removal under U.T.C. §706 [C.O.V. §55-547.06 "Removal of trustee"].
Uniform Principal and Income Act §§501-502 [C.O.V. §§55-277.25--277.26] allocates one half of the regular trustee fee and trustee fees relating to acceptance, distribution, termination and preparation of property for sale to principal; and half of the regular trustee fee to income. Restatement Of The Law Third, Trusts (2001) And U.T.C. §708 "Compensation of trustee"--The commentary to U.T.C. §708, provides that this section's reasonable trustee compensation rule and the court's authority to adjust compensation is inspired by §38(1) "Trustee's Compensation and Indemnification", particularly Comments c.-i. §38 Trustee's Compensation and Indemnification: "(1) A trustee is entitled to reasonable compensation out of the trust estate for services as trustee, unless the terms of the trust provide otherwise or the trustee agrees to forgo compensation."
Comment on §38(1)
Comment c. ("Amount of compensation") states that absent statutorily prescribed trustee rates, trustees are entitled to reasonable compensation.
Comment c(1). ("Determining reasonable compensation") provides that the authority trial courts have to determine trustee compensation is subject to review for abuse of discretion. Along with local custom, the following are also important in determining reasonable compensation (i) "trustee skill competence and facilities", (ii) time spent, (iii) the trust property's character and value, (iv) administrative difficulty, responsibility and risk involved--including discretionary distributions, (v) "the nature and costs of services rendered by others" and (vi) the quality of administrative results. The reasonableness of trustee compensation (and for reimbursement of costs advanced) is based on the degree to which agents, advisors, etc., are hired to perform functions the trustee might have undertaken. Generally, trustee compensation is not determined by a court, unless a statute requires otherwise, but a court can order a refund of excessive fees. Comment d. ("Special services") permits a trustee who provides special services (e.g., as realtor or attorney) to receive fees for those services where there is a benefit for the trustee to perform those services rather than another. Comment e. ("The terms of the trust") directs that where trust terms withhold or limit a certain trustee compensation, ordinarily that compensation governs. However, a court may alter any such fee which is unreasonably high or low (see §36, ["Resignation of Trustee", discussed at U.T.C. §401 (C.O.V. §55-544.01) above]. Whether prescribed compensation applies to a successor trustee is a matter of interpretation. Where the trustee compensation is based on contract, only that agreed amount is payable unless unanticipated circumstances arise. Where the trustee is also a beneficiary and the trust instrument does not indicate whether compensation is in addition to or instead of the beneficial interest, the matter is a question of interpretation. However, where the trust is silent on the issue, the presumption is that the trustee is entitled to a fee as well. Comment f. ("Agreement with beneficiaries") allows a trustee fee to be increased or reduced upon agreement with beneficiaries. However, only those beneficiaries who agree to it (including by virtual representation) are contractually bound. However, such agreements are voidable if the consenting beneficiary is incapacitated or the trustee failed to provide material facts regarding the compensation that the trustee knew or should have known. Comment g. ("Waiver") permits the trustee to waive compensation either in writing or by conduct such as by knowingly making final trust distribution without a fee. Comment h. ("Double commissions for double roles") indicates that generally one who performs dual roles, such as personal representative and trustee, "is entitled to such compensation as is reasonable in view of all the duties performed." See also §78, ["Duty of Loyalty"], discussed at U.T.C. §802 (C.O.V. §55-548.02), Comment c(5). ("Exception for certain self-employment") below] which generally prohibits the trustee from self-hiring as a violation of the trustee duty of loyalty; however, "in some circumstances a trustee may provide to the trust, and receive additional compensation for, special services that-while not required of trustee's generally-are necessary or appropriate to prudent administration of the trust." Thus it is reasonable that a trustee with "special skills and facilities" will use them to benefit trust administration. Comment i. ("Several trustees") directs that the fee of several trustees set by statute or the trust's terms "ordinarily is to be divided among them in accordance with the relative value of their services. Also, "[I]n the aggregate, the reasonable fees for multiple trustees may be higher than...for a single trustee, because the normal duty of each trustee to participate in all aspects of administration can be expected not only to result in some duplication of effort but also to contribute to the quality of administration." (See §81, ["Duty with Respect to Co-Trustees", discussed at U.T.C. 703(a) (C.O.V. 547.03A), which essentially states that (1) each trustee in a multiple trustee trust "has a duty and the right to participate in trust administration" unless the trust's terms provide otherwise and (2) each trustee "has a duty to use reasonable care to prevent a co-trustee from committing a breach of trust and, if a breach of trust occurs, to obtain redress."] and §80, ["Duty With Respect to Delegation", discussed at U.T.C. 807, (C.O.V. §55-548.07) below]). Comment j. ("Successive trustees") directs that where a trustee ceases to act as trustee, for death, resignation, removal, etc., that trustee or deceased trustee's estate is entitled to "reasonable compensation for such services as the trustee has performed." C.O.V. §55-547.09 Reimbursement of expenses--
§55-547.09A 1-2 allows the trustee to be reimbursed from trust property "with interest as appropriate" for (1) expenses properly incurred in trust administration and (2) even if not proper, to the extent necessary to prevent unjust enrichment of the trust.
Uniform Trust Code commentary to U.T.C. §709 directs that U.T.C. §816 [C.O.V. §55-548.16 "Specific powers of trustee"] permits the trustee to spend trust funds as necessary to administer the trust including authority under U.T.C. §807 [C.O.V. §55-548.07 "Delegation by trustee"] to hire agents. Trustee reimbursement is available only for expenses incurred within the trustee's authority; and the trustee may "withhold appropriate reimbursement for expenses" before making beneficiary distributions--referring specifically to §244 comment b. Restatement (Second) of Trusts (1959) & §38 comment b. (Tentative Draft No. 2, approved 1999). The trustee is not entitled to reimbursement for unauthorized expenses, which are considered to be the trustee's own responsibility. The commentary describes subsection (a)(2) as entitling the trustee "to reimbursement for unauthorized expenses only if the unauthorized expenditures benefitted the trust" and that the purpose of this provision, which is based on §245 Restatement (Second) Of Trusts (1959), is not to "ratify" such conduct but to prevent unjust enrichment. Thus a court may delay or deny reimbursement for any of the following reasons: the expense was incurred in bad faith; the trustee knew the expenditure was improper; the trustee unreasonably believed the expense was necessary to protect the trust; the expense was not beneficial; or reimbursement would impair or defeat the trust's purpose--referring specifically to §245 comment g. Restatement (Second) of Trusts (1959).
Restatement Of The Law Third, Trusts (2001) And U.T.C. §709 "Reimbursement of expenses"--The commentary to U.T.C. §709, indicates that this section is similar to §38(2) "Trustee's Compensation and Indemnification", and comment b. ("Lien for compensation and indemnification"). §38 Trustee Compensation and Indemnification: "(2) A trustee is entitled to indemnity out of the trust estate for expenses properly incurred in the administration of the trust. "
Comment b. ("Lien for compensation and indemnification") states that the trustee's indemnification right under this subsection, "entitles a trustee to pay directly from funds of the trust, or to obtain reimbursement from the trust estate if the trustee has personally paid, expenses of the trust properly incurred in the course of administration. These reimbursements may be withheld prior to income or principal distributions.
§55-547.09B directs that the trustee holds a lien against trust property, including reasonable interest, to secure reimbursement for any advance of trustee money on behalf of the trust.
Uniform Trust Code commentary to U.T.C. §709 indicates that the authority of the trustee under this subsection to hold a lien on trust property for proper reimbursable amounts coincides with the trustee's U.T.C. §802(h)(5) [C.O.V. §55-548.02H 5 "Duty of loyalty"] right to advance monies to protect the trust, without breaching the trustee's duty of loyalty, if the transaction was fair to beneficiaries. Also, the trustee may be reimbursed for attorney fees and expenses paid in defending an action, but not if it breaches the trust--referring specifically to 3A Austin W. Scott & William F. Fratcher, The Law of Trusts Section 245 (4th ed. 1988).
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