- Trent v. National City Bank (Indiana) – The Indiana Court of Appeals affirms the trial court’s granting of summary judgment in favor of National City Bank on claims of undue influence by the bank in the creation of a trust.
- Wells Fargo Bank, N.A. v. Crocker (Texas) – The Texas Court of Appeals reverses jury award of $230,000 in compensatory damages and $30 million in punitive damages against Wells Fargo in connection with the distribution of a bank account to the decedent’s surviving second wife.
- In re Paul F. Suhr (Kansas) – The Kansas Supreme Court affirms reformation of a trust under the Uniform Trust Code to carry out the settlor’s intent to save federal estate taxes.
- Raines v. Synovus Trust Company, N.A. (Alabama) – The Alabama Supreme Court dismisses claims of children against bank for breach of fiduciary duty where the trust agreements are revocable by the parents and the trustee’s duties are owed solely to the parents as settlors under the Uniform Trust Code.
- Enchanted World Doll Museum v. CorTrust Bank, N.A. (South Dakota) – The South Dakota Supreme Court rejected an appeal to a cy pres order for failure to give notice of the appeal to the new charitable beneficiary of a trust, even though the new charity was not a party to the suit.
- Glass v. Steinberg (Kentucky) – The federal district court in Kentucky finds that a suit for removal of a trustee and an accounting meets the requirements for diversity jurisdiction where the value of the trust corpus exceeds $75,000.
- Virginia Home for Boys and Girls v. Phillips (Virginia) – The Virginia Supreme Court reverses the trial court’s order conveying estate assets to the beneficiary of an oral contract for lack of corroboration under the Virginia Dead Man’s Statute.
- Conte v. Pilsch (Virginia) – The Fairfax Circuit Court orders the return of $5,000 bequest mistakenly distributed to the wrong person, and rejects the claim that the executor should personally reimburse the estate where there is no showing of bad faith by the executor.
- Harbour v. SunTrust Bank (Virginia) – The Virginia Supreme Court enforces the plain language of a will providing for vesting of a remainder interest at the death of the first spouse to die, and rejects trial court’s order deferring vesting to the death of the second spouse to die and passing assets to a charitable beneficiary.
Trent v. National City Bank, 918 N.E. 2d 646 (Indiana Court of Appeals, Dec. 22, 2009)
Marie Koffenberger and her husband James had two children, Susan and James Jr. Susan and James Jr. each had four children. Mr. Koffenberger was an officer with Eli Lilly & Co., and amassed a large amount of Eli Lilly stock. Mr. Koffenberger died in 1977, and under his will, he gave half of his estate to Marie, and the other half in a trust for the benefit of Marie and his children with National City Bank as trustee.
Marie struggled with alcoholism for several years after her husband’s death, and was subject to guardianship proceedings from 1989 until her recovery in 1992. Marie executed three wills between 1994 and 1997. Under each will, Marie left her personal and real property to her grandson James and his wife Paula, with the balance of her assets in unequal shares among James and Susan’s other children, Robert, Amy and Amanda, with James receiving the largest share starting at 50% and escalating by the third will to 75%.
Marie maintained a relationship with the bank for years. In 1996, the bank contacted her about tax concerns related to her estate planning. In 1997, Marie, her accountant, her attorney (her attorney had worked for the bank until 1995), and her grandson James and his wife met with the bank to discuss Marie’s estate planning.
The bank recommended a trust account over an agency account for someone Marie’s age. Following the meeting, Marie decided to create a trust with the bank as trustee. The trust was drafted by Marie’s attorney without any involvement from the bank, and provided for the distribution at Marie’s death of 75% of the trust assets to James, Paula and their children, with the remaining 25% split between Robert, Amy and Amanda. The trust also provided for annual gifts out of the trust of the excess of the trust assets over $8 million.
Marie was diagnosed with Alzheimer’s in 1998, and she died in 2002. In 2004, her grandson Robert (who received only 8.34% of the trust at Marie’s death) sued the family members, Marie’s lawyer, the bank, and its trust officer. With respect to the bank, Robert alleged it failed to verify Marie’s capacity before accepting the appointment as trustee, that the bank erred by serving as trustee of both Marie’s trust and her husband’s trust, and that the bank unduly influenced Marie in the execution of her trust.
During Robert’s deposition, he admitted he did not have any facts supporting his claim of undue influence against the bank. The bank moved for summary judgment, which the trial court granted. Robert appealed the award of summary judgment.
On appeal, the Indiana Court of Appeals held that there was no presumption of undue influence because the bank’s business relationship with Marie did not rise to the level of a fiduciary duty to monitor her execution of her trust, she was not a subordinate party to the transaction, she chose to take the bank’s advice and create a trust, there was no evidence of a benefit to the bank from the transaction (other than its trustee’s fee that was essentially the same as its agency fees), and Marie was represented by an attorney and accountant at the meeting with the bank.
The court noted the lack of adequate evidence that Marie lacked capacity at the time the trust was executed, and held there was no evidence that the bank actually influenced her. The court noted that whether someone is susceptible to undue influence is of no consequence, unless there is a showing that influence was actually exercised. Because the bank had no role in determining the terms of the trust and the beneficiaries, and did not draft the trust, there was no genuine issue of material fact relating to the bank’s alleged exercise of undue influence over Marie. Accordingly, the court upheld the summary judgment in favor of the bank.
Robert also alleged the bank breached a duty owed to him by permitting his brother James to exercise undue influence over Marie. Robert alleged that as trustee of Marie’s husband’s trust, the bank was required, pursuant to its discretion to distribute trust assets for Marie’s “care, support, maintenance, and general welfare,” to step in and prevent James from exerting undue influence over Marie. The court rejected this argument, noting the bank’s “only responsibility under this section was to determine whether Marie needed more money, and if it determined that she did, pay that money to her.” The court also rejected the claim that the bank breached its duty under Marie’s trust, noting the bank’s only obligation was to administer the trust on its terms, and there was no suggestion in the record that the bank failed to do so. The court refused Robert’s claim that a state statute dealing with conflicts between the interests of a beneficiary who also serves as trustee should prevent the bank from serving as trustee of both Marie’s trust and her husband’s trust. The Court of Appeals affirmed the dismissal of all claims against the bank.
Wells Fargo Bank, N.A. v. Crocker, 2009 Tex. App. LEXIS 9791 (Dec. 29, 2009)
In 1995, John Crocker married his second wife, Launa White. Before their marriage, they executed a premarital agreement providing among other items that all bank accounts were community property and that any new accounts would provide for rights of survivorship. In 2000, John spoke with a trust administrator at Wells Fargo about opening two new accounts – one separate account to hold John’s separate property, and one joint account (the subject of the litigation) with Launa to receive funds from an existing account held by John and Launa as joint tenants with rights of survivorship.
According to the trust administrator, he and John never discussed survivorship on the account. The trust administrator wrote “+ Launa joint” on a copy of the purported agreement for the account without John knowing or telling him to do so. The new account did not expressly provide for survivorship. The trust administrator testified that John never returned the original account agreement. There were a number of inconsistencies and other problems with the trust administrator’s testimony at trial.
John died in 2001, leaving a will that gave the residue of his estate to his two daughters from his previous marriage. Wells Fargo probated the will and was appointed as executor. A dispute arose about the joint account created by John, and the bank determined that at John’s request, $334,000 had been transferred from a joint account with survivorship to the disputed account that lacked survivorship. In accordance with advice from its counsel that Launa was entitled to the funds, the bank distributed the $460,000 in the account to Launa in April 2001.
In May 2001, the bank and its attorney met with the daughters, their attorneys, and several grandchildren, and for the first time discussed the distribution of the account assets to Launa. At that meeting, the bank knew, but did not tell the daughters, that the bank did not have an original signed account agreement and instead only had a copy that was marked with “+ Launa joint” by the trust administrator. Moreover, the bank did not tell the daughters that the proposed agreement did not provide for survivorship. Although the daughters requested a copy of the account agreement, the bank did not provide the daughters with documents until almost one year later.
Although the bank later admitted it erred by not following up to get the original account agreement, it never disclosed the mistake to the daughters.
The daughters sued the bank alleging it failed to disclose the problems with the disputed account to them, seeking half of the funds in the account. The case was tried to a jury, which found that the bank was negligent, acted with malice, and committed forgery. The jury awarded the daughters $230,000 in compensatory damages, and $30 million in punitive damages against the bank. The bank appealed.
On appeal, the Texas court of appeals found that the evidence of breach of duty was sufficient to support the jury’s verdict, because the bank failed to fully and fairly disclose to the daughters the information concerning their interests in the estate. The court rejected the bank’s argument that the daughters were required to present expert testimony, finding it unnecessary to establish breach of the “simple and straightforward” duty to provide the daughters with information.
However, the court of appeals found that the evidence at trial was insufficient to prove the required element that the breach of duty caused injury to the daughters. The court rejected the daughters’ suggestion that the court dispense with the need to prove causation, and reviewed the jury decision which implicitly concluded that the injury occurred because the disputed funds belonged to the estate and were wrongfully distributed to Launa.
The court of appeals concluded that the evidence supporting causation was “no more than a mere scintilla,” and that a reasonable juror could not disregard the evidence presented by the bank at trial that: (a) the disputed account was funded with assets from an account with survivorship, (b) the premarital agreement provided that accounts would be community property and have survivorship, (c) Launa asserted a claim to the funds, and the bank’s counsel advised that Launa was entitled to the funds, and (d) the bank’s counsel testified that Launa was entitled to the funds and that litigation would cause additional expenses to the estate.
Accordingly, the court of appeals concluded that the daughters failed to carry their burden of proving causation, and the court reversed all of the damages and ordered that the daughters take nothing.
In re Paul F. Suhr Trust, 2010 Kan. Unpub. LEXIS 1 (Jan. 15, 2010)
In 1999, Paul Suhr executed a revocable living trust with the intent to reduce or eliminate federal estate taxes and pass as much wealth as possible to his descendants, tax free. Paul’s revocable trust provided for the creation of a credit shelter trust. After his death in 2006, Paul’s wife Helen was informed that the trust, as a result of scrivener’s error, would not fully use Paul’s applicable exclusion amount (the trust capped the credit shelter trust at $650,000 and granted Helen a general power of appointment).
Helen, as trustee of her husband’s trust, petitioned the court to reform the trust to save federal estate taxes under the Kansas Uniform Trust Code, with the consent of all beneficiaries. The trial court agreed and reformed the trust as requested. Helen then appealed the favorable ruling to the court of appeals under a state statute that permitted the appeal despite the lack of adversity where construction of a will is involved with federal tax implications. The Kansas Supreme Court transferred the case from the court of appeals in order to satisfy the requirements for respect of a judgment of a state court by the IRS under Commissioner v. Estate of Bosch.
The Kansas Supreme Court noted it was not necessary to give notice of the appeal to the IRS, and proceeded to affirm the trial court reformation of the trust, finding that the record (including an affidavit from Helen) clearly supported the finding that Paul intended to save taxes, and the reformation carried out that objective.
Raines v. Synovus Trust Company, 2009 Ala. LEXIS 298 (Dec. 30, 2009)
Robert and Helen Raines operated the Jasper Bowling Center for more than 20 years, and amassed an investment portfolio with a large amount of Wal-Mart stock. The Rainses alleged that investment agents from Synovus Trust approached them about managing their investments, promised them high investment returns, and suggested diversifying their Wal-Mart stock.
Each of the Rainses created a revocable trust for their benefit, and the benefit of their children with themselves and Synovus as co-trustees. The Rainses funded each trust with $1 million. They entered into investment agreements for their trusts providing Synovus with sole investment discretion to carry out their investment objectives.
In 2007, the Rainses and their children sued Synovus alleging that Synovus failed to properly administer the trusts and did not diversify the trust assets, breach of fiduciary duty, fraud, and breach of contract.
Synovus moved to dismiss the children’s claims based on lack of standing. The trial court denied the motion, and Synovus asked for a permissive appeal on whether the non-settlor beneficiaries of a revocable trust have standing to assert claims for breach of fiduciary duty. The trial court granted the motion, which was heard as a mandamus action by the Alabama Supreme Court.
The Alabama Supreme Court held that under Alabama’s Uniform Trust Code, the rights of the children were subject to the control of the Rainses while the trusts were revocable, and therefore the children’s cause of action for breach of fiduciary duty did not seek redress for legally protected rights, and they do not have standing to assert those claims.
Enchanted World Doll Museum v. CorTrust Bank, 2009 SD 111 (Dec. 22, 2009)
Eunice Reese established a trust to pay income to the Enchanted World Doll Museum so long as it was a qualified charitable organization. After Eunice’s death, CorTrust Bank became successor trustee of the trust. Thereafter, the board of the Doll Museum decided to cease operations, and started selling the museum assets and winding up its affairs. In response to this development, the trustee petitioned the court to apply the cy pres doctrine, because the trust purpose had become impossible to achieve, and approve the distribution of the trust assets to a community foundation.
The Doll Museum objected, and requested the distribution of the trust assets to the United Federation of Doll Clubs, Inc. The trial court ordered the distribution of the trust assets to the community foundation for the purpose of making income distributions to qualified charities for the purpose of establishing and operating a doll museum.
The Doll Museum appealed. The trustee moved to dismiss the appeal on the basis that the Doll Museum failed to serve the community foundation with its notice of appeal (even though the community foundation was not formally a party to the suit and did not make an appearance in the suit, and even though the notice of appeal was served on the state attorney general). The South Dakota Supreme Court dismissed the Doll Museum’s appeal, on the basis that the trial court’s order distributing the trust assets to the community foundation vested rights in that organization that could not be denied without notice, regardless of its failure to make a formal appearance before the trial court, and therefore the failure to serve the community foundation with notice of the appeal was fatal to the appeal.
Glass v. Steinberg, 2010 U.S. Dist. LEXIS 3483 (W.D. Kentucky, Jan. 15, 2010)
A trust beneficiary sued the trustee of trusts worth $150,000 in state court seeking removal of the trustee, an order compelling the trustee to account and recovery of litigation costs. The beneficiary alleged the trustee had breached its fiduciary duties by charging unreasonable fees, failing to account, and improperly investing the trust assets. The trustee removed to federal court, and the beneficiary moved to remand on the grounds that the $75,000 amount in controversy requirement for federal diversity jurisdiction was not met because the suit sought declaratory and injunctive relief.
The federal district court noted that the case was one of first impression in the 6th Circuit, and that the circuits were split on the perspective to be used in determining the amount in controversy. The district court determined the amount in controversy from the perspective of the plaintiff beneficiary, and held the amount in controversy for diversity purposes is the value of the trust corpus over which the trustee exercises control, as the “object of the litigation.” Under this standard, the jurisdictional amount was met because the trusts were worth more than $75,000.
Virginia Home for Boys and Girls v. Phillips, 2010 Va. LEXIS 1 (Jan. 15, 2010)
In 1977, Wayland Council proposed that his nephew, Wayland Phillips, buy a parcel of land from the Councils to live on with his family, work the farm until Wayland’s retirement, then take over the farm and pay rent to the Councils, and provide the Councils with business and personal help. In return, the Councils promised to leave their assets to Phillips at the death of the survivor of them. The agreement was entirely oral. In reliance on the agreement, from 1977 until 2007, Phillips carried out his obligations under the agreement, even though it involved dramatically increasing his commute to work, turning down employment offers, and incurring personal debt to carry the farm during drought. Wayland died leaving all of his assets to his surviving wife, and his wife told Phillips at the time, that her will left everything to Phillips at her death.
Thereafter, Mrs. Council’s attitude changed. She revoked her power of attorney naming Phillips as agent, and in 1996 changed her will to leave all of her estate to the Virginia Home for Boys and Girls. Mrs. Council died in 2005, and Phillips brought suit to enforce the oral contract. The trial court ruled in favor of Phillips on the basis of his partial performance of the contract.
On appeal by the Virginia Home, the Virginia Supreme Court reversed and entered judgment in favor of the Virginia Home on the following grounds: (1) the Virginia Dead Man’s Statute required corroboration of Phillips’ testimony concerning the existence of the oral contract, which must be “independent of the surviving witness” and not “emanate from him,” and the circumstantial evidence of Phillips’ actions did not meet the standard for corroboration, and (2) because of the lack of corroboration, the oral agreement failed to satisfy the Virginia statute of frauds.
Conte v. Pilsch, 2009 Va. Cir. LEXIS 200 (Fairfax, Dec. 18, 2009)
In her will, Evelyn Pilsch made a $5,000 bequest to Thomas Pilsch if he survived Evelyn, and if he did not, to Thomas’s wife Evangeline. The executor under Evelyn’s will attempted to locate heirs, and overlooked an e-mail informing him that both Thomas and Evangeline predeceased Evelyn. The executor located Thomas’s son, Thomas Pilsch, Jr., and mistakenly distributed the $5,000 bequest to him.
Upon learning of his error, the executor demanded the return of the money, but the son refused. The executor sued to recover the improperly distributed funds, and the court ruled in favor of the executor. The court rejected the son’s argument that the executor should personally reimburse the estate for his error, noting that Virginia fiduciaries are not personally responsible for every loss of funds where there is no bad faith, and the fault is at most an error of judgment or want of unusual sharp-sighted vigilance.
Harbour v. SunTrust Bank, 278 Va. 514 (Nov. 5, 2009)
Mollie Johnson died in 1999. Under her revocable trust, she provided for the retention of the trust assets for her husband’s benefit during his lifetime, and distribution at her husband’s death in equal shares to her three siblings and Stuart Baptist Church. Her trust provided that the share for her brothers and sister would lapse and be added to the church’s share if any of them should “fail to survive me.”
Mollie’s husband and two of her siblings survived her. The surviving siblings subsequently died (each leaving one descendant), and thereafter Mollie’s husband died in 2007. SunTrust Bank, as trustee, sought direction from the court on the distribution of the trust assets. The trial court entered judgment in favor of the church, holding that the shares for the siblings lapsed because the siblings were not alive at the death of Mollie’s husband. The heirs of the siblings appealed.
On appeal, the Virginia Supreme Court reversed the trial court, held that the plain language of the trust provided that the siblings only were required to survive Mollie’s death for their interests to vest, and rejected the church’s argument that would require adding language to the trust. Because the court relied on the plain language of the trust, the court did not need to address the early vesting rule.
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