How to Legally Remove a Trustee in North Carolina for Mishandling Trust Funds

1. Detailed Answer

When a trustee misuses or mismanages trust assets, beneficiaries have the right under North Carolina law to seek the trustee’s removal. The Uniform Trust Code, codified in Chapter 36C of the North Carolina General Statutes, provides the legal framework for this process.

Understand the Trustee’s Duties

A trustee holds a fiduciary duty to act in the best interest of beneficiaries. That duty includes loyalty, impartiality, prudence, and full disclosure of trust matters. If a trustee diverts, wastes, or recklessly invests trust funds, the trustee breaches these duties.

Grounds for Removal

Under N.C. Gen. Stat. § 36C-14-100(a)(7), the court may remove a trustee without cause. It may also remove a trustee for cause when the trustee:

• Commits a serious breach of trust.
• Demonstrates unfitness or persistent failure to administer the trust effectively.
• Engages in a conflict of interest that harms beneficiaries.

The court turns to the best interests of beneficiaries. It weighs the trust’s terms, the trustee’s conduct, and any harm caused by mismanagement.

Step-by-Step Procedure

1. Review the Trust Instrument. Confirm any provisions on trustee removal or successor appointment.
2. Gather Evidence. Compile bank statements, investment reports, emails, or other records showing misappropriation or poor management.
3. Prepare and File a Petition. File a petition in the Superior Court in the county where the trust is administered or where the trustee lives.
4. Provide Notice. Serve all interested parties, including beneficiaries, the trustee, and any co-trustees, with a copy of the petition.
5. Attend a Hearing. Present evidence of breach. The trustee may defend their actions.
6. Obtain a Court Order. If the court finds cause, it will remove the trustee and may surcharge the trustee for losses.
7. Appoint a Successor Trustee. The court may name a successor. If the trust names an alternate, the court will likely appoint that individual or institution.

Potential Remedies Against a Removed Trustee

• Surcharge for losses caused by breach of trust (N.C. Gen. Stat. § 36C-4-405).
• Injunctions to prevent further misconduct.
• Accountings and audits to recover missing assets.

2. Key Points to Remember

• “Fiduciary duty” means the trustee must act loyally, prudently, and impartially.
• North Carolina’s Uniform Trust Code governs removal (see N.C. Gen. Stat. § 36C-14-100).
• Beneficiaries must file in Superior Court and serve proper notice.
• The court decides based on trust terms, trustee conduct, and beneficiary interests.
• A successor trustee can step in immediately to protect assets.

Take Action Today

If you suspect a trustee has mishandled trust funds, don’t wait. Pierce Law Group attorneys understand the Uniform Trust Code and can guide you through every step. Contact us at intake@piercelaw.com or call (919) 341-7055 to schedule a consultation.