Resignation Of A Trustee Under The Arkansas Trust Code: Navigating Liability And Releases

Statutory Framework for Trustee Resignation 

The Arkansas Trust Code, at Ark. Code Ann. § 28-73-705, governs the issue of a trustee’s voluntary resignation:

• Notice Requirement:  A trustee may resign by giving at least 30 days’ notice to qualified beneficiaries, the settlor (if living), and co-trustees.

• Court Approval:  Alternatively, resignation may be approved by a court, which may impose conditions to protect trust property.

• Liability Continuation:  However, a trustee’s resignation does not discharge liability for prior acts or omissions.  Any sureties on the trustee’s bond remain liable for breaches committed before resignation.

• Applicability:  These rules apply to irrevocable trusts created on or after September 1, 2005, and revocable trusts that later become irrevocable.

Releases and Exculpation

Resignation often raises the question of whether a trustee can be released from liability. Arkansas law provides several mechanisms, but with strict limits:

• Exculpatory Clauses in Trusts:  Trust instruments may include clauses limiting trustee liability.  However, under Ark. Code Ann. § 28-73-1008, such clauses are unenforceable if they attempt to relieve liability for bad faith, reckless misconduct, or willful breaches of trust.

• Beneficiary Releases:  Under Ark. Code Ann. § 28-73-1009, beneficiaries may consent to or ratify trustee conduct, or release a trustee after full disclosure.  But, releases obtained through improper influence or without adequate information are invalid.

• Court-Ordered Releases:  Courts may condition resignation approval on an accounting or other protective measures, ensuring beneficiaries have recourse if misconduct is discovered later.

Practical Considerations for Trustees

Trustees considering resignation should keep in mind:

• Accounting Obligations:  Before stepping down, trustees should provide a final accounting to beneficiaries.  This transparency strengthens the enforceability of any release.

• Negotiated Releases:  Trustees often seek written releases from beneficiaries in exchange for resignation.  These documents should be carefully drafted to comply with Arkansas law.

• Risk Management:  Even with releases, trustees remain exposed to liability for undisclosed breaches.  Proper recordkeeping and disclosure are essential.

Example Scenario

Imagine a trustee of a family trust wishes to resign due to health issues.  They provide 30 days’ notice to beneficiaries and co-trustees.  Before resignation becomes effective, they deliver a final accounting.  Beneficiaries sign a release acknowledging the accounting and waiving claims.  While this release offers protection, it cannot shield the trustee from liability if later evidence shows intentional misconduct.

Conclusion

Trustee resignation under the Arkansas Trust Code is not a clean break.  Liability persists unless properly addressed through statutory compliance, transparent accountings, and carefully drafted releases.  Trustees should view resignation as a process requiring both legal precision and beneficiary cooperation.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House, Swann & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.