Standards For Trustee Removal Discussed

July 29, 2010 | Erin Herbold

 

In this case, the beneficiaries of a trust appeal from a trial court order denying their objection to a 2008 annual report and denying their application to remove a bank as trustee.  The trust was created under a will executed in 1994 by a husband and wife to provide for their daughter during her life. After the daughter’s death, the remaining assets were to pass to her children, the couples’ grandsons. The trust directed that the trustee pay, from time to time, income from the trust to the daughter and in the trustee’s discretion pay sums from the principal to provide for “her proper care, support, and maintenance.” The trust also specifically stated that it was the parties’ wish that the farm land not be sold. 

The husband died in 1996, followed by the wife in 2005. The trust assets consisted of a 312-acre farm and house. The total value of the trust was nearly $872,000. The daughter had lived in the home with her family for nearly 52 years. The trustee, with the consent of the beneficiaries, transferred the house and four acres to the daughter. The farmland was rented to the daughter and her husband’s farm corporation. 

In 2008, the bank filed an annual report asking for fees in the amount of $2,375.43 for its services since the beginning of the trust administration in 2006.  The court ruled that the fees were reasonable. Though the beneficiaries appealed this ruling, the Iowa Court of Appeals agreed as to the reasonableness of the fees. The next year, the bank filed a third annual report and once again requested fees. Despite the objections of the beneficiaries and their request that the trustee be removed, the court agreed with the trustee’s fees and declined to remove the bank as trustee. 

On appeal, the court addressed the issue of trustee compensation under Iowa Code §633A.4109. Under this section, the trial court has “considerable discretion” in the allowance or non-allowance of trustee’s fees when the terms of the trust do not specify the rate of compensation. The appellate court determined that the fees, in this case, were quite reasonable. A representative of the bank testified that they examined fees charged by other trust companies for like-type services and computed an average fee. The trustee testified that while they devoted more time to the trust as a result of the beneficiaries’ objections, they made no claim for fees over and above the standard fee. §633A.4109 does not require trustees to submit an itemized statement for compensation.  Consequently, the court upheld the trial court’s fees determination. 

Next, the court addressed the beneficiaries’ request for removal of the trustee. Iowa Code §633A.4107(2) governs the court’s ability to remove a trustee. The court may do so if the trustee has:  1) committed a material breach of the trust; 2) is unfit to administer the trust; 3) is hostile or exhibits lack of cooperation with co-trustees; 4) displays consistent and substantial substandard performance; 5) charged excessive compensation; or 6) merged with another institution or changed location.  A court may also remove a trustee for cause. The beneficiaries were unable to prove that any of these circumstances had occurred. Since the clear intent of the trust was to preserve the farmland for the next generation, the trustee was found to be doing a sufficient job and the court would not order a removal. In re Estate of Weitzel, No. 0-400/09-1660, 2010 Iowa App. LEXIS 733 (Iowa Ct. App., Jul. 14, 2010).