Appointment and Qualification of Trustee as Fiduciary

Appointment and Qualification of Trustee as Fiduciary

Terms:


Trustee:
The trustee is the person or entity (e.g., a bank or other corporation) who holds legal title to the trust property.

Fiduciary:
A person or institution who manages money or property for another and who must exercise a standard of care in such management activity.


A trustee can receive an appointment from two different sources: an inter vivos trust or a testamentary trust. The trustee of an inter vivos trust derives her authority from the trust instrument itself and administers the trust without supervision of the court.

Testamentary trustees derive their authority from court appointments. Usually, the court appoints the trustee named in the will. This is similar to the court appointing the executor named in the will. Since the appointment comes from the court, the trustee is responsible to the court and must account to it at various times.

The trustee, the recipient of legal title to the transferred property, also must meet certain qualifications to serve in that capacity. Generally, anyone who has the capacity to acquire or hold title to the particular property for his or her own benefit also has the capacity to receive the property as trustee.

In addition, the trustee must have the capacity to administer the trust, thereby excluding minors and mentally disabled persons. The trustee can be a person or an entity, such as a domestic corporation or partnership. Often, major banks or trust companies have departments devoted exclusively to administering trusts.

Also, more than one person can be a trustee; each serving as co-trustees. If one is disqualified from serving, only the other co-trustee has the authority to act. See, e.g., In re Dorrance’s Will, 3 A.2d 682 (Pa. 1939). If any problem arises with the proposed trustee, such as failing to qualify or declining the appointment, a court of equity will appoint a trustee and the trust will not fail for lack of a trustee.

EXAMPLE: Randall by will leaves certain land in trust for his daughter, Gabrielle. He named his sister, Charlene as the trustee. However, Charlene died three years ago. To save the trust, the court will appoint a trustee to administer the trust and will order the person having legal title to the property to convey it to the appointed trustee. (Before the court’s order, the title would be either in Randall’s heir or in his residuary devisee). See, e.g., Perfect Union Lodge No. 10 v. Interfirst Bank, 748 S.W.2d 218 (Tex. 1988).

The trustee’s resignation and removal are treated similarly to those of executors. To resign, the trustee needs court permission, unless the trust agreement contains a provision to the contrary. See, e.g., Lane v. Tarver, 113 S.E. 452 (Ga. 1922). A court may remove a trustee for any one of numerous grounds, such as dishonesty, incompetence in handling of trust property or dissipation of the trust estate. See, e.g., Blumenstiel v. Morris, 180 S.W.2d 107 (Ark. 1944); Sauvage v. Galloway, 80 N.E.2d 553 (Ill. 1923).