When the terms of a trust grant one co-trustee the power to remove the other, is exercise of the power subject to fiduciary constraints? | Charles E. Rounds, Jr. – Suffolk University Law School

In England, a power of removal is a “fiduciary power,” which “must be exercised for the benefit of the beneficiaries, not for the benefit of the person upon whom the power is conferred.” Lewin ¶ 13-41. In the U.S., a removal power in someone other than the trustee is generally not a fiduciary power, unless the terms of the trust provide otherwise. See 2 Scott & Ascher §11.10.2 (The private trust); 5 Scott & Ascher §37.3.6 (The Charitable Trust); Uniform Directed Trust Act §5(b)(2). But what if the holder of the removal power is also a co-trustee? Must any exercise be for the benefit of the beneficiaries such that the power is just one of the trustee’s myriad express and implied fiduciary powers? On this side of the Atlantic it is generally the terms of the trust that will determine whether the co-trustee with a removal power is constrained by the fiduciary principle in its exercise. In other words, it is all about what the settlor had intended. A court should ascertain settlor intent by construing the trust instrument in its entirety. One Minnesota court wrestled with the fiduciary issue in a matter involving a co-trustee with a power to remove his fellow co-trustees. See Matter of Trust Agreement of Genevieve M. Rossow, 2023 WL 7293812 [Court of Appeals of Minnesota]. The co-trustee had been married to the now-deceased settlor. The provision granting the co-trustee the removal power referred to the grantee as the settlor’s “spouse.” That the reference was to a specific person, that is to say that it was not a generic reference to the occupant of the office of the co-trustee at any given time, suggests that the power was a personal power, not a fiduciary power. The court did not see it that way. That the grantee was also a co-trustee rendered the removal power a fiduciary power per se. Certainly it would be unsettling to extend this logic to the exercise of personal powers of appointment held by trustees. As a general rule, a holder of a personal power of appointment, even if he happens to be the trustee, does not hold the power in a fiduciary capacity; has no duty to exercise it; and may disclaim it, release it, or allow it to lapse. See Restatement (Third) of Trusts §46 cmt. c.

Cross reference. The difference between a fiduciary power of appointment and a nonfiduciary/personal power of appointment is taken up in §8.1.1 of Loring and Rounds: A Trustee’s Handbook (2024), the relevant portion of which section is excerpted in the appendix below.

Please see full publication below for more information.

Leave a Comment

Your email address will not be published. Required fields are marked *