In determining whether a trustee has acted in the best interests of the beneficiaries, the interests of the beneficiaries are determined by reference to the terms of the trust, not by reference to the personal preferences of the beneficiaries. N.C.G.S. § 36C-1-103(9). Removal for conduct detrimental to the interests of the beneficiaries is a well-established standard for removal of a trustee. N.C.G.S. § 36C-7-706 Official Comment.
In determining whether a trustee has acted in the best interests of the beneficiaries, the interests of the beneficiaries are determined by reference to the terms of the trust, not by reference to the personal preferences of the beneficiaries. N.C.G.S. § 36C-1-103(9). Removal for conduct detrimental to the interests of the beneficiaries is a well-established standard for removal of a trustee. N.C.G.S. § 36C-7-706 Official Comment.
Not every breach of trust justifies removal of a trustee. The breach must be “serious.” This can consist of a single act or a series of smaller breaches which individually do not justify removal, but do so when considered together. Id. An appropriate ground for removal is a serious breach of the trustee’s duty to keep the beneficiaries reasonably informed as to the administration of the trust, either as required by the trust instrument or by N.C.G.S. § 36C-8-813 (duty to inform and report). Failure to comply with this duty may make it impossible for the beneficiaries to protect their interests. It may also mask more serious violations by the trustee. N.C.G.S. § 36C-7-706 Official Comment.
The lack of cooperation among trustees described in subsection (b) (2) need not involve a breach of trust. What is important is that the failure to cooperate impairs the administration of the trust. For example, the fact that there are an even number of trustees whose inability to agree has resulted in deadlock, may justify the removal of one or more or all of the trustees, even if there is no showing of bad faith. Id. Friction between the trustee and the beneficiaries is generally not grounds for removal by itself unless it results in a breakdown in communications between the beneficiaries and the trustee or appears to be irreconcilable. Id.
Subsection (b)(3) gives the court a great amount of discretion to remove a trustee for “unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively.” N.C.G.S. § 36C-7-706(b)(3). The key factor underlying all of these grounds for removal is that removal of the trustee will best serve the interests of the beneficiaries as those interests are defined in the trust. N.C.G.S. § 36C-1-103(9). “Unfitness” includes any lack of basic ability to administer the trust. “Unwillingness” can include cases in which the trustee refuses to act, as well as cases in which the trustee is indifferent to the interests of one or more of the beneficiaries. A “persistent failure to administer the trust effectively” can include a long-term pattern of consistently poor investment results when compared to other trusts. N.C.G.S. § 36C-7-706 Official Comment. In determining whether a trustee designated by the settlor is unfit, the courts will give deference to the settlor’s wishes, in situations where the settlor was aware of the trustee’s failings at the time of appointment. Id. The following illustration is given by Restatement (Third):
- W’s will left her residuary estate to T, in trust, to pay “all of the net income, and such amount of principal as the trustee in his sole discretion may deem appropriate, to my husband H,” and on H’s death to distribute the principal “by right of representation to my then living descendants,” all of whom were issue of W by a prior marriage. T predeceased W, and W’s daughter D has petitioned to be appointed as trustee to fill the vacancy, for which W’s will makes no provision. Even though D is an adult with suitable skills to act as trustee, the court will ordinarily deny D’s petition because of the conflict of interest.
- The same facts as in Illustration 8 except that, after learning of T’s death, W executed a codicil naming her daughter D as the trustee in the place of T. The court will not remove D (or refuse to appoint her) as trustee.