A removed trustee retains myriad residual fiduciary duties and liabilities. The most obvious is the duty not to betray the confidences of the entrustment going forward. Less self-evident is the removed trustee’s residual duty to see to it that the fiduciary reins are assumed by a qualified successor. One corporate trustee who had been ostensibly removed by the trust protector initiated litigation seeking in part a judicial determination that the protector-designated successor trustee was qualified. The court proceeded on the implicit assumption that the outgoing trustee was saddled with a fiduciary to duty “to carry out a certain amount of due diligence” on the designated successor. See Representation of Jasmine Trustees Ltd.  JRC 196 (The Royal Court of Jersey) [The Crown dependency].
It is suggested that at minimum if a removed trustee has actual knowledge that the designated successor is unfit to serve, e.g. he/she is 10 years old or is in a locked Alzheimer’s facility, then the removed trustee has a residual fiduciary duty to seek instructions from the court as to the disposition of the entrusted property. In the Jasmine case, the removed trustee came to believe as it endeavored to assemble the asset-transfer paperwork that that the designated corporate successor might well be a fly-by-night operation. Thus, the removed trustee put the whole matter in the hands of the court, an action which the court blessed.
The core consideration is whether relinquishing title and custody to whomever would self-evidently compromise the equitable property rights of the trust beneficiaries, whether current or future, whether qualified or non-qualified, or self-evidently violate the terms of the trust. If it would, then, assuming all else fails, the removed trustee should simply put the matter in the hands of the Court and be done with it. There should be no need for the removed trustee to make any recommendations to the Court as to how the Court should resolve the matter.
In further support of the proposition that a removed trustee would have a fiduciary duty to see to it that the fiduciary reins are assumed by a qualified successor, see Matter of Sinzheimer, 2017 NY Slip Op 31379 (U), June 28, 2017. The court found that the removed trustee’s retention of title to and possession of the entrusted assets until such time as a qualified corporate successor co-trustee could be found and installed in accordance with terms of the trust “was prudent and appropriate in the circumstances, particularly in consideration of…[the removed trustee’s residual]…fiduciary duty to the remainder beneficiaries.”
Again, a removed trustee on actual notice of the unsuitability of his presumptive successor is saddled with a residual fiduciary duty to conduct minimal due diligence. To breach that duty is to risk breaching the universal duty not to knowingly participate in or facilitate a breach of trust, a duty that is taken up in §7.2.9 of Loring and Rounds: A Trustee’s Handbook . If a non-fiduciary third party to a trust relationship can be held liable in equity for knowingly participating in or facilitating a breach of trust, a removed trustee certainly can be. No amount of drafting will protect the removed trustee who is on actual notice that the designated successor is unsuitable. One cannot forget that the trust relationship is a creature of equity, not statute. In fact, the Uniform Trust Code expressly declines to define a trust, deferring instead to longstanding equity doctrine. The danger in all of this is that the novice trustee or trust counsel may put more reliance on the letter of the liability-limiting language in the trust instrument (or in the letter of the liability-limiting verbiage of some statute) than is warranted. The said §7.2.9 of Loring and Rounds: A Trustee’s Handbook is reproduced in its entirety in the Appendix below.