A Georgia court recently permitted the beneficiaries of an irrevocable trust, who were the children of the grantor/decedent, to modify the trust by adding a provision to permit the beneficiaries to remove the trustee and replace him with a corporate trustee. (Muir v. Muir, Civil Action File No. 2021CV344470 (Fulton County Superior Court, Ga.)) Georgia has a trust modification statute (a variation of Uniform Trust Code Section 411) that permits the modification of a trust under certain circumstances. Georgia was one of the first states to adopt a version of this statute, although other states have followed suit, notes LeAnne M. Gilbert, a partner at the Atlanta firm of Gaslowitz Frankel LLC, who represented the beneficiaries in this case. Here’s what happened.
Arbitration Action
Michael Muir created an irrevocable trust, with himself as trustee and his minor children as beneficiaries. After Michael passed away, his brother Timothy took over as successor trustee. The beneficiaries sought to remove the trustee in an arbitration action, alleging that the trustee had breached his duties, including failure to provide a trust accounting when one was requested, forging the decedent’s name on checks to close out the decedent’s Nevada bank accounts, failure to abide by the terms of the trust in making payments to himself for a purported debt, preferring himself over the other beneficiaries of the trust, failure to pay the “debt” to himself in the manner set out in the trust and refusal to use trust assets to reimburse the decedent’s wife for funeral expenses (as the trust required). The arbitrator awarded damages to the petitioners but opted not to remove the trustee.
Modification Statute Invoked
Several years later, the trustee and beneficiaries weren’t communicating, and the trust wasn’t functioning as the beneficiaries believed the decedent intended. Rather than suing the trustee for breach of duty and seeking his removal a second time, Gilbert and her colleagues decided to take a different tack: They used Georgia’s trust modification statute, Ga. Code Section 51-12-61(c), which requires a court to grant a petition to modify a trust if: (1) the grantor is deceased, (2) all the beneficiaries consent to the modification, (3) the trustee receives notice of the petition and (4) the proposed modification isn’t inconsistent with any material purpose of the trust. The Muir beneficiaries asked the court to allow approval of a modification permitting a majority of beneficiaries to remove a trustee and replace them with a corporate trustee.
Why a Corporate Trustee?
Beneficiaries may choose a corporate trustee over an individual because a corporate trustee knows how to manage a trust, knows their fiduciary duties and is generally very careful to abide by those duties, says Gilbert. Individual trustees aren’t always educated as to their responsibilities. Here, the beneficiaries wanted a corporate trustee because they didn’t want to have to communicate with Timothy anymore (their relationship deteriorated precipitously after the death of their father, Timothy’s brother), and they didn’t trust that Timothy was managing the trust assets (which were mostly hotel investments that Timothy was also invested in) for their benefit as opposed to Timothy’s benefit.
Modification Not Inconsistent With Trust’s Purpose
Timothy objected to the modification, arguing that his service as trustee was a material purpose of the trust. Following an evidentiary hearing, the court concluded that there was no indication that having a corporate trustee manage the trust assets would be inconsistent with the trust’s stated purpose. The court allowed the beneficiaries to modify the trust. As a result, the beneficiaries are not only empowered to replace Timothy with a corporate co-trustee, but, should they become dissatisfied with the corporate trustee they select to replace Timothy, they’re also empowered to replace that trustee with a different corporate trustee.