TAX BREAK

IN DEPTH: Trust Administration – Road Map for IN DEPTH: Trust Administration – Road Map for Disaster? By Nick R. Taylor (Continued)

 

factor in determining prudence) and later subject to the prudent investor act (which requires diversification unless it is in the interest of the beneficiaries not to diversify, taking into account the purposes and terms of the governing instrument).

 

The Court foreshadows its dramatic holding by stating early in the opinion that “where a retention clause conflicts with the legal duty of prudence imposed upon a fiduciary, the clause must lose.”  The Court goes on to instruct corporate fiduciaries that the trustee must listen to “three voices”:  (1) the settler (his/her intent and strength of wording); (2) the beneficiaries (regarding their economic situation and expressed desires); and (3) the market (the realities of the financial world and the composition of the trust corpus). Certainly these factors as cited by the Court require the trustee to examine its own trust administration in a much broader context than strict reading of the estate document controlling the trust.

 

As relevant to attorneys drafting trusts, the opinion contains much language analyzing the Will to determine the specific goals of the decedent and the priorities of the decedent. These goals and priorities were not explicitly stated within the document, but the Court reaches its conclusions by analyzing who was to benefit under the Will, and taking this analysis to the extent of even looking at where certain provisions were found within the sequence of the document and even which sentences occurred first within given paragraphs.

 

The Trustee’s Administration

 

With regard to trustees, the Court cites at length factors of the trust administration which the Court will ultimately conclude constitute a breach of fiduciary duty. Some of these factors seem quite reasonable in isolation; some of these factors seem quite remarkable. Among the factors the Court notes are the following:

 

· For over 19 years the bank gave complete responsibility of the trust to a trust officer “non-legally trained and rather fresh-on-the-field”, having been out of college only five years.

 

· The Court dismisses the investment review committee of the bank, finding it to be a “rubber-stamp process” in which a trust officer’s annual presentation to the committee lasted in total approximately 20 minutes and typically covered 8 to 15 accounts within that presentation.

 

· The trust officers responsible for the trust management were given near exclusive control on document interpretation with no checks and balances on their interpretation.

 

· The bank did not hesitate to find compelling reasons to sell Kodak stock to pay bank fees throughout the trust administration, while insisting that it had no latitude to sell the stock for reinvestment for general beneficiary purposes.

 

· For years, no one within the bank sought a judicial determination of the phrase “compelling reason”.

 

· The bank internal policies did not clearly specify whose job it was to handle questions of document interpretation within the bank.

 

 

Continued

 

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