In their February 11, 2008 Trusts & Estates article, Corporate Trustees Beware, Samantha E. Weissbluth and Erika Alley, both of Foley & Lardner, LLP, in Chicago discuss the case of Janice Galloway Trust, No. C5-04-200042 (Minn. Dist. Ct. 2007). A corporate fiduciary was sued for breach of fiduciary duty on the theory that it failed to do estate planning.
Weissbluth and Alley point out that while the corporate trustee won the case, it might not be that way the next time:
"But it’s surprising the amount of attention the trial court paid to what seems like a cut-and-dry breach of fiduciary duty claim. And, given the court’s emphasis on the facts in this case, it seems possible that a different set of facts and different experts testifying for the beneficiaries would have meant a decision against the fiduciary."
In Galloway, U.S. Bank as trustee was criticized for not contributing the assets of a QTIP trust to a Family Limited Partnership. In a very long opinion the court discussed whether or not the trustee had a duty to invest in the FLP (no). And discussed whether or not it was a good idea for various tax reasons (maybe so and maybe not).
The children who were beneficiaires and saw the QPRT reduced by $10.2 million in estate taxes when their mother, the income beneficiary, died, objected to the payment of trustee’s fees to U.S. Bank on various grounds, including that the bank had breached its fiduciary duty to the children as remaindermen by failing to contribute the QTIP’s assets to a FLP. They claimed this technique would have resulted in a substantial valuation discount for estate-tax purposes.
The trial court dismissed all of the children’s objections — except for one breach of fiduciary duty claim.
Weissbluth and Alley describe the court’s reasoning: "Janice wanted to keep her financial affairs private and did not want to involve her children in her estate planning. She was not particularly close with either of her children and did not always approve of how they handled money. Also, Janice had rejected even simple estate-planning techniques recommended by her estate-planning attorney. Clearly, she was not interested in engaging in planning as complicated as a partnership." (And what does that have to do with it? She was not the trustee.)
The bank’s marketing materials were examined. And of course, they said they did estate planning. (Doesn’t everyone?) But the materials made it clear that clients should depend on their outside advisors (rather than the bank) to implement estate-planning strategies.
Weisbluth and Alley’s advice:
"Although the bank was ultimately found not liable, based on the Galloway court’s decision, corporate trustees would be well-advised to carefully document meetings with clients regarding estate planning and ensure that their marketing materials are clear in directing clients to rely on outside advisors when implementing estate-planning techniques."