FIRMA National Risk Management Training Conference Ft. Worth, Texas ~ March 28, 2012 FIDUCIARY...

FIRMA National Risk Management Training Conference

Ft. Worth, Texas ~ March 28, 2012FIDUCIARY LITIGATION

ByWilliam Campbell Ries, Esquire

412-594-5646Tucker Arensberg, P.C.

Pittsburgh, PA

DUTIES RE: LIFE INSURANCE TRUSTS

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Background• Insured creates trust• Trustee purchases life insurance• Insured gifts to trustee to pay premiums

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Trustee Duties• Monitor• Needs• Carrier solvency• Comparison to illustration• More innovative products

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In Re: Matter of Stewart Cochran Irrevocable Trust v. KeyBank, N.A.

(Indiana)

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Practice Tips• Clearly define duties in governing instrument• Conduct analysis under Prudent Investor Rule• Use experts as required

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DUTY TO INVEST TRUST ASSETS

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Background

• A trustee has a duty to invest trust assets within a reasonable time after receipt

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Background (continued)

• What constitutes a reasonable time is based upon all relevant facts and circumstances including distribution requirements and current economic and market conditions

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In the Matter of Trust BUnder the Last Will of X

[Record Under Seal]

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Practice Tips• Clearly document the basis for investment

decisions• Provide explicit notice to beneficiaries of

investment actions• Damages should not be based on hindsight

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DUTY TO LIQUIDATETRUST ASSETS

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DUTY TO LIQUIDATE TRUST ASSETS

Background • Upon the death of the life tenant of a trust, the

trustee has a duty to liquidate the securities held in trust and distribute the proceeds to the remaindermen unless the remaindermen execute an election to take “in kind”

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McCall v. Harris Bank, N.A.(Indiana)

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Practice Tips

• Liquidate trust assets immediately unless the remaindermen agree to take “in kind”

• Determine the status of the beneficiary prior to executing a new investment program to ascertain whether the purchases are prudent

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CONFLICTS OF INTEREST

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Background

• Trustee owes duty of loyalty to beneficiaries

• Duty to avoid conflicts

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Estate of Rothko(New York)

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Wiggins v. PNC Bank(Kentucky)

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Practice Tips

• Conflicts are not always obvious

• When in doubt, obtain court approval

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DUTY TO DIVERSIFY

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DUTY TO DIVERSIFY

Background

• Under the Prudent Investor Rule, a trustee has a duty to diversify the assets unless under the circumstances it is prudent not to diversify

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DUTY TO DIVERSIFY

Hitz v. Sun Trust(Georgia)

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DUTY TO DIVERSIFY

Practice Tips• Establish a diversification standard• Justify exceptions such as large capital gains• Disclose risks of continued non-diversification to

beneficiaries• Be particularly careful of potential self-interest• Obtain written consent from beneficiaries

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POWERS OF ATTORNEY

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POWERS OF ATTORNEY

Background

• Agency relationship whereby principal appoints an agent to act upon the principal’s behalf within the scope of the authority granted

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POWERS OF ATTORNEY


• Durable powers are utilized as a planning tool to avoid guardianships

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POWERS OF ATTORNEY

Background (continued)• Certain abuses have occurred:

Undue influence Gifting abuses Self-dealing Improper commingling

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POWERS OF ATTORNEY

In Re: Winthrop

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POWERS OF ATTORNEY

Estate of Alice G. Novosielski(Pennsylvania)

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POWERS OF ATTORNEY

Clarence Smith, Jr.v.

Bank of America(Florida)

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POWERS OF ATTORNEY

Vine Case(Pennsylvania)

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POWERS OF ATTORNEY

Practice Tips• Take steps to ensure Power of Attorney is

properly executed with witnesses• Only appoint trusted agent• Review delegation of powers and limit gifts if

appropriate

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FAILURE TO GIVE NOTICE

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Background

• Trustees and executors have a duty to give notice to trust beneficiaries

• Failure to do so may lead to liability

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Tulsa Professional Collection Services v. Pope

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Shriners Hospital for Crippled Children v.

First Security Bank of Utah

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McNeil v. PNC

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Practice Tips

• Be aware of Trustee’s duty to communicate with beneficiaries

• Uniform Trust Code provides specific duties

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COMMON TRUST FUNDS

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COMMON TRUST FUNDS

Background• Common Trust Funds are authorized under

Regulation 9.18(a)(1) of the Comptroller of the Currency to permit the commingling of assets held by a bank serving as trustee, executor, administrator, guardian, and custodian under the Uniform Transfers to Minors Act

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COMMON TRUST FUNDS


• Exempt from the registration requirements of the Securities Act of 1933 under Section 3(a)(2)

• Exempt from the Investment Company Act of 1940 under Section 3(c)(3)

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COMMON TRUST FUNDS


• Exemption language provides:

Common Funds cannot be advertised

Cannot be offered for sale to the general public

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COMMON TRUST FUNDS

Commercial National Bank

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COMMON TRUST FUNDS

Dunham & Associates

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COMMON TRUST FUNDS

Practice Tips

• Ensure that Common Funds are used for existing accounts incidental to trust services

• Do not advertise Common Funds• Do not market interests in Common Funds to

general public as an investment vehicle

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DUTIES OF DIRECTED TRUSTEES

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Background

• A trustee of a directed trust has a duty to follow the direction of a powerholder unless the direction is contrary to law

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Moench v. Robertson

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Rambo v. WorldCom

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Practice Tips• Ensure that governing instrument does not

impose discretionary authority on trustee• Request and review all relevant documents• Review “Chinese Wall” policies• Clearly allocate fiduciary duties

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www.tuckerlaw.com 52

Ten Things You Can Do To Avoid Liability

1. Establish Investment Policy

2. Review Investments

3. Follow Prudent Investor Rule

4. Balance Beneficiaries’ Interests

5. Review diversification issues


Ten Things You Can Do To Avoid Liability

6. Communicate with Beneficiaries

7. Disclose Fees

8. Maintain Adequate Records

9. Review Advertisements

10.Avoid Conflicts of Interest


QUESTIONS?

William Campbell Ries, EsquireTucker Arensberg, P.C.1500 One PPG PlacePittsburgh, PA 15222

[email protected]

FIRMA National Risk Management Training Conference Ft. Worth, Texas ~ March 28, 2012 FIDUCIARY...

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