msfiduciary

A Discussion Forum for the Mississippi Estate Planning Community

Category Archives: Fiduciary Duties

Implant denied as "emergency" distribution from trust.

maleWe often quip around the office that one day we will combine our stories into a book. Publishers would likely require it to be fiction, but as most trust officers know, bizarre things happen when you are dealing with family money.

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When Mom becomes a Tenant

The trust business involves many roles, and most corporate trustees perform well most of the time with the fiduciary and administrative roles that years of statutes and uniform laws have helped to define. At least as important is maintaining a healthy and cooperative relationship with all the parties to a trust in order to handle the inevitable conflicts that will arise given enough time.

Years ago we became trustee of a trust established for the benefit of a minor with proceeds received in a wrongful death litigation. The minor’s mother, as guardian of his estate, was allowed to enter into the trust agreement on the minor’s behalf. Subsequently the court approved the trust’s purchase of a home for the minor, which of course the mother also lived in; as well as monthly support payments to the mother as caregiver for the minor. Read more of this post

The Cat’s Meow. California no contest ruling overturned on appeal.

In Lange v. Nusser, 2011 Cal. App. Unpub. A California Court of Appeals reversed a Probate Court’s ruling that imposed the application of a trust’s no-contest provision. Certain trust beneficiaries filed a petition for interpretation of the trust and relief against the trustee for breach of fiduciary duties. Specifically, the trust’s beneficiaries sought to determine whether the cats owned by the grantor at the time of her death and which were being cared for by the successor trustee, were still alive, and to force the trustee to relocate the cats in order to distribute the remainder trust estate. Ruling in favor of the trustee, the probate court also concluded the beneficiaries violated the trust’s no contest clause, forfeiting their interests under the trust.

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Attorneys share secrets for a “Happy” Trustee

Attorneys Mark S. Furman and Emily C. Shanahan with Tarlow, Breed, Hart & Rodgers, P.C. in Boston, MA have written an excellent article for Private Wealth titled “The Happy Trustee.” Say the authors,

While serving as a professional trustee can be a rewarding experience, it is not without risks. Trustees, for example, often find themselves in conflict with unhappy beneficiaries. Sometimes such situations are unavoidable. But trustees can take actions to minimize the likelihood of being in the hot seat.

The article discusses three scenarios in which the astute trustee can exercise some effort in order to head off potential conflicts with trust beneficiaries.

  1. Determining the lifestyle needs of beneficiaries
  2. Communicating with trust beneficiaries
  3. Acting as a successor trustee

For the complete article, click here.

What Wealth Management Professionals, Trust Officers and Estate Planners Need to Know About Trust Protectors

Wealth Strategies Journal posted an excellent article by Richard C. Ausness, Professor of Law at University of Kentucky College of Law, about Trust Protectors. Trust Protectors are frequently used today as a mediator between trustee and beneficiary; and are usually given additional powers such as investment authority, and power to remove and appoint trustees. However, Ausness also points out the potential disadvantages of Trust Protectors, stating in part,

More than half of the states provide no statutory recognition for trust protectors and many of those that have enacted statutes have not identified the powers that a trust protector may exercise or defined the nature of a trust protector’s duties and responsibilities. 

To read the complete article, follow the link below.

What Wealth Management Professionals, Trust Officers and Estate Planners Need to Know About Trust Protectors – Articles

Trust Companies as Executors

This pamphlet, authored by John Edson Brady of the New York Bar 95 years ago, provides the use of examples – court cases involving individual executors or administrators who proved inept, careless or crooked. Click the image to read more.

In Terrorem clause upheld: may cost beneficiary $17 Million

In Shelton, Tamposi v. Tamposi, Jr. & Tamposi, a New Hampshire judge enforced the in terrorem clause of the decedent’s trust, which could result in the beneficiary being forced to disgorge nearly $17 Million in trust benefits received. In terrorem clauses are typically found in wills and are more commonly known as no-contest clauses. Such clauses seek to discourage legal challenges to the provisions of a decedent’s will, often leaving no share to the individual who challenges the will’s provisions.

Elizabeth Tamposi, one of twelve beneficiaries of the Sam A. Tamposi, Sr. trusts, had a history of bringing actions against her brothers, Sam, Jr. and Steven Tamposi, for allegedly breaching their fiduciary duties as investment directors of the trusts, but avoided the application of the in terrorem clause until her last unsuccessful attempt which began in 2007. Apparently this judge had seen enough, and ruled that the in terrorem clause had been violated.

In addition to the in terrorem clause, this case is fascinating not just for its notoriety but for the number of fiduciary issues it examines.

First, a little background: Samuel A. Tamposi, Sr. (Sam, Sr.) was a hugely successful real estate developer from New Hampshire. Sam, Sr. had six children including Sam, Jr., Betty and Steve. In his plans for his million dollar estate, Sam, Sr. established the SAT, Sr. Trust (trust) in 1992. The trust was amended multiple times after its creation—the pertinent provisions of which affirmed that the trustee may retain “real estate interests” as a substantial part or all of the trust property and named Sam, Jr. and Steve as investment directors. The trust was to be divided into 12 separate trusts for Sam, Sr.’s children and their children. Perhaps most importantly, the trust contained an in terrorem clause specifying that should any person challenge the trust’s validity and attempt to have it set aside or contest any part of it, that person would forfeit his right in the trust, with his or her share distributed “in the same manner as would have occurred had such person died prior to the date of execution of this trust.”

Upon Sam, Sr.’s death in 1995, his estate was valued at $20.5 million, consisting of various real estate holdings, limited partnerships and corporations (one of which was an interest in the Boston Red Sox). Sam, Jr. and Steve assumed responsibility as investment directors for the 12 subtrusts. Elizabeth was not pleased with her father’s selection of Sam Jr. and Steven, however and sought to have them removed or their actions curtailed. It’s a sad story of family discord, but one that has many lessons for practitioners which I shall examine in subsequent posts.

See “The Cementing of Family Bonds” Trusts & Estates.

Hat tip: Wills, Trusts, & Estates Prof Blog

Mississippi leads nation in “deadweight ratio”

As if Mississippi hasn’t received enough first-place awards for titles we would prefer to not be known for, let’s add highest “deadweight ratio” when it comes to measuring the integrity of our municipal bonds. At least according to Forbes Magazine writer William Baldwin.

Municipal bonds are attractive to high tax-bracket investors because the interest paid on such bonds are exempt from federal income tax. They are also frequently-held assets of fiduciary accounts; often believed to be secure alternatives to taxable government or agency bonds. The principal risks of municipal bonds is credit risk (the issuing municipality’s ability to pay back the bondholders) and interest rate risk (the risk that rising interests rates will decrease the value of lower-interest bonds). According to Baldwin this is only part of the risk investors need to consider.

The traditional measures of credit risk in state and city bonds are the ratings from Standard & Poor’s and Moody’s, budget deficits, outstanding debt  and pension underfunding. These measures are all valuable to investors. But they are only symptoms of the disease.

The structural problem is that government has too many mouths to feed. It’s possible to quantify that problem. The result is a metric that I call the Deadweight Ratio. It tells you how many beneficiaries of government spending there are for every private sector job.

Every state has one set of people contributing to the fisc­—namely, private sector workers—and another drawing from it—namely, government workers and welfare recipients. In healthy states, the contributors outnumber the users. In unhealthy states the reverse is true.

Up to a point, the private sector is willing to carry government employees and welfare moms on its shoulders. Beyond that point, it is not, however worthy the recipients of government largesse are. Employers leave. The jobs go to other states or overseas. That leaves what’s left of the private sector in even worse shape.

To calculate Deadweight Ratios, Baldwin and Forbes statistician Scott DeCarlo used as the recipient count the number of people qualifying for Medicaid at some point in 2007 (the latest year in the relevant database) plus 1.25 times the number of state and local workers. The 1.25 multiplier reflects the fact that, in the bigger state and city plans, pension payouts average 25% of payroll.

By their calculation, Mississippi’s deadweight ratio leads the nation with a score of 120.7. This cannot bode well for our state if we want to attract private sector investment. It also serves as a new risk-measurement tool for those of us who hold Mississippi debt in trusts and other fiduciary accounts. The “Top-Ten” troubled states are shown below.

numbers are in thousands

Contributors

State & local
government
workers
Medicaid recipients Deadweight
Ratio
Mississippi 877 222 750 120.7
New Mexico 635 167 501 117.9
California 11918 2137 10511 113.0
Arkansas 973 199 692 98.9
Louisiana 1566 333 1097 98.6
Arizona 2045 363 1456 96.1
Maine 506 91 350 94.4
New York 7272 1387 4955 93.5
West Virginia 621 130 392 93.0
Alaska 244 69 121 91.2

For the complete list and the full article see, What’s Your State’s Deadweight Ratio? – William Baldwin – Investment Strategies – Forbes

Trustees of ILITs Face Tough Times Ahead

Recently I’ve had the privilege of visiting with several law firms and professional associations around Mississippi and discussing the fiduciary risks involved with trust-owned life insurance. Using the case of Paradee vs Paradee, it’s been informative and sometimes entertaining, yet sobering as well. I believe that we are witnessing the beginning of what may become the largest area of fiduciary litigation ever. A perfect storm has formed: hybrid policies issued in the early 80′s when an insured was 40-50 may now require large infusions of cash to perform as expected; historically low interest rates and underperforming subaccounts in variable policies make quick liars out of policy illustrations that are less than 5 years old; and the imposition of the Uniform Prudent Investor Act (UPIA) on life insurance trusts leaves many trustees wondering how to apply its requirement to diversify trust assets. It’s no wonder that many corporate trustees, especially national bank trustees, have decided that the risk is just not worth it, and have abandoned the business.

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Trustee gets off on a technicality

In Bowen v. State, 322 S.W.3d 435 (Tex. App.—Eastland 2010, pet. filed), a Texas jury convicted Deborah Bowen of misapplication of fiduciary property valued at over $200,000 under Penal Code § 32.45.  She was then sentenced to eight years in prison, fined $10,000, and ordered to pay $350,000 in restitution.  Deborah Bowen appealed the decision and was eventually acquitted of the charges on a technicality. Because only about $100,000 was held in trust for the named beneficiary (it did not list all of the beneficiaries) and because the jury charge did not include a lesser included offense, Trustee’s conviction was reversed. Moral: Selecting an institutional trustee whose impartiality is held accountable and who is required to abide by the letter and spirit of the Creator’s intentions, can help prevent these kinds of family battles.

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