It’s a problem we see increasingly often. A trust will name a trustee, and even a successor trustee. What’s the problem? The successor trustee is not available, or fails to act, or is otherwise no longer the right choice.
How does a new trustee take over? It is sometimes difficult to figure out when the new trustee should begin to act. Too often, the identity of the successor trustee is uncertain.
Sidney Goodman’s trust
Consider the trust signed by Minnesota resident Sidney Goodman in 1985. Lawyers sometimes worry that their clients do not stay in contact often enough; that does not appear to have been a problem for Mr. Goodman. By the time of his death in 2013, he had amended his trust a total of 21 times.
Mr. Goodman and his son John were co-trustees of the trust until Mr. Goodman’s death. The trust had a mildly complicated structure for designating a successor trustee. Upon Mr. Goodman’s death, his role as co-trustee would fall to one of his attornies, David Gotlieb. If son John were to die, his co-trustee position would become vacant unless he had named someone to succeed him.
After Mr. Goodman’s death, son John continued to administer the trust in his role as co-trustee. The lawyer, Mr. Gotlieb, did not step in to act with John. For over two years John was effectively the sole trustee.
When John died unexpectedly (at age 66), no one was acting as trustee of Mr. Goodman’s trust. Eight days after John’s death, Mr. Gotlieb signed an acceptance as successor trustee of his late client’s trust, and began to administer the trust.
The dispute over the successor trustee
Before son John’s death, he had acted (with full authority under the trust terms) to purchase trust assets for a reduced price. That process was underway at his death, and Mr. Gotlieb, as the successor trustee, proposed to continue the proceeding. That would effectively transfer some of the value of the trust to John’s estate (and his own trust).
One of the beneficiaries of Mr. Goodman’s trust objected. She saw in the trust document that a majority of the income beneficiaries could name a successor trustee if there was no trustee in place. She argued that Mr. Gotlieb had waited too long to accept his role as successor to Mr. Goodman as co-trustee, and therefore appointed another person — Mr. Sherman — as trustee.
Mr. Sherman then filed a probate court proceeding seeking clarification of his role as successor trustee. The Minnesota probate judge ultimately ruled against Mr. Sherman, finding that Mr. Gotlieb was the successor trustee despite his not having acted between the time of Mr. Goodman’s death and the death of Mr. Goodman’s son.
The Minnesota Court of Appeals, in an unreported decision, agreed with the probate court, and affirmed its ruling. The appellate judges noted that Mr. Gotlieb needed to act within a “reasonable” time — and before Mr. Sherman had been “appointed” by the beneficiary, in any event. In re: Goodman Revocable Trust, February 12, 2018.
What should one do about successor trustees?
The deeper message from the Goodman decision is about planning ahead. Of course every trust should name a successor trustee. It also makes sense to provide a mechanism for flexibility — to name a successor trustee in unanticipated sequences of events.
Mr. Goodman’s trust actually did that. It named son John as co-trustee with Mr. Goodman while he was still alive (a practice we increasingly find useful). The trust also gave each trustee and successor trustee the power to name their own successors (another practice we commonly apply in trusts we draft).
If anything, Mr. Goodman’s arrangement for successor trustees might have been too elaborate. He named his own successor to act as co-trustee with his son John after his own death. It is difficult to guess whether Mr. Gotlieb made a conscious decision not to step in while John was acting as trustee alone. There is nothing in the court’s decision indicating that Mr. Gotlieb or anyone in his firm prepared the trust. It is possible that he did not even realize that he was named as a successor trustee.
Other alternatives for successor trustees
Clients sometimes choose to name a bank or trust company to act as successor trustee, partly to avoid just this kind of confusion. Even that is an imperfect decision, since corporate trustees have steadily moved away from acting except in the largest trust estates. Because of son John’s co-trusteeship, and the permission given in the trust for him to enter into a favorable deal with trust assets, a corporate trustee might have declined to serve in any event.
Was it peculiar for Mr. Goodman to name one of his lawyers as successor trustee? Not at all. A quick look at Mr. Gotlieb‘s online information indicates that he might be especially qualified to handle complicated business dealings. At Fleming & Curti, PLC, we often act as fiduciary (trustee, agent, or personal representative) for our clients; the practice is not at all uncommon.
What about Arizona law?
Whenever we write about a court decision from outside Arizona, readers might reasonably wonder whether we endorse the court’s opinion, or would apply it to Arizona cases. Of course every case is different, and small changes in facts can change the legal outcome dramatically. State laws do differ, as well.
In this Minnesota case, the appellate court applied Minnesota’s version of the Uniform Trust Code (the UTC). Arizona has also adopted a version of the UTC. The particular language cited in Goodman was also adopted, in exactly the same words, in Arizona.
Does that mean that the Goodman case would be good law in Arizona? Not necessarily. First, it is an “unreported” decision — which means that the appellate court determined that it should not be cited as precedent in future cases. And, as we have already noted, different facts make a huge difference. Still, the general principle — that the settlor of a trust should have his or her wishes carried out for trustee and successor trustee selection — is valid in Arizona, as well.
