Court Awards Punitive Damages in Breach of Fiduciary Duty Suit Against Regions

A Chancery Court in Mississippi has entered a final Order (as amended) awarding punitive damages to the Plaintiffs in their suit against Regions Bank for breach of fiduciary duty, a case we’ve looked at in the past (see Regions Hit with $4M Judgment over Trust Mismanagement).  The total damage award is $6,464,254 as follows:

  • $3,363,326 actual damages;
  • $1,000,000 punitive damages;
  • $966,740 attorneys’ fees;
  • $175,867 expenses;
  • $958,321 pre-judgment interest at 8% from date suit was filed through the date the Court’s Order on liability was entered;
  • In addition, the Court awarded post-judgment interest at 8% from the entry of its Final Judgment.

Some of the compelling findings of the court include:

  • “[T]his Court finds that the overall breach of duty to be reprehensible.”
  • “Regions knew they were required to conduct a needs analysis, yet they never did.  There were hundreds of transactions conducted over the course of 11 years and not once did Regions take into consideration the needs of Mrs. Sheppard to maintain her present standard of living.  They were giving her money any time she asked for it, distributing principal when income was available in the trust, and they never swept the account.  They violated their own policies and this rises to the level of reckless behavior.”
  • “The court also notes that Regions’ actions and intentional concealment regarding the Trust really set the family on a course that would have been very different if Regions had performed its duties. . .  Evidence reveals that [Regions’] actions had a severe impact on the family and the Trust.  Ironically, the impact on the family Trust was exactly what Mr. Sheppard was trying to ensure never happened.”
  • “A substantial punitive damages verdict would send Regions the message that it cannot utilize a ‘let the buyer beware’ mentality when it serves as a fiduciary.”
  • The trust officer’s supervisor testified that he didn’t properly supervise the trust officer “because he knew very little about trusts.”
  • “Evidence revealed that [the investment manager assigned to the Trust] took orders from Birmingham (Regions’ headquarters) and she never questioned why the entire principal was being disbursed from the trust in such a manner.”

Trustees and Proprietary Products

Elsewhere, over at Bloomberg BNA, Daniel Hauffe looks at another case in Mississippi involving Regions Bank.  In his article, Prudence in Violating the Prudent Investor Act, Hauffe offers some precautionary measures when a Trustee invests trust assets in its own proprietary financial products.

Decanting

At Wealth Management, David Silvian and Phyllis Johnson ask, Do Trustees Have a Duty to Consider Decanting?

High Investment Concentration

Finally, one of the largest banks in the world, Fifth Third Bank, has found itself in the middle of a claim that it failed to diversify the assets of a trust settled by one of the founders of the Standard Register Company.  Margarida Correia explains in Fifth Third Battles heirs of Standard Register Founders.

 

Around The Water Cooler this morning, we’re talking about inflation and Clinton vs. Trump on the estate tax:

  • Thompson Reuters has released its projected inflation-adjusted Estate, Gift, and Generation-Skipping Transfer (GST) Tax Exemptions:
    • Estate, Gift, and GST Tax Exemptions:  $5,490,000 (up from $5,450,000 in 2016)
    • Gift Tax Annual Exclusion:  $14,000 (the same as in 2016)
    • Special Use Valuation Reduction Limit:  $1,120,000 (up from $1,100,000 in 2016)
    • Amount of estate tax deferral on farm or closely-held business interests:  $1,490,000 (up from $1,480,000 in 2016).

Around The Water Cooler this morning, we’re discussing the ongoing Benson litigation, House and Senate Republicans respond to IRC Section 2704 Proposed Regulations, and tax appointment clauses through the lens of the Tom Clancy Estate.

Just when you thought the Benson litigation involving the New Orleans Saints and New Orleans Pelicans was over, it picks back up.  As Gal Kaufman explains, the matter is now heading back to court to wrestle over the swap powers in the trusts and the valuation of the nonvoting interests in the professional sports teams.

In response to the Proposed Regulations under IRC 2704 which would severely limit valuation discounts associated with family limited partnerships and limited liability companies, House and Senate Republicans called for Treasury Secretary Lew to not move forward with the proposed regulations and have introduced legislation which would quash the proposed regulations.

Jean Stewart takes us through the Tom Clancy Estate litigation which highlights the importance of tax apportionment provisions particularly in blended families.

Around The Water Cooler this morning, we’re discussing trustees gone wild, exculpatory clauses, and presidential politics.

  • It appears that the democratic ticket in this year’s general presidential election is not the only candidate who might have issues with a private foundation.  In Bloomberg BNA, staff reporter Colleen Murphy details alleged self-dealing at the Trump Foundation.
  • In Lexology, Luke Lantta at Bryan Cave details and provides commentary on In re Scott David Hurwich 1986 Irrevocable Trust, an Indiana case in which the state Court of Appeals limited the relief from liability provided by an exculpatory clause in the trust agreement.
  • Dawn Markowitz, legal editor at Trusts & Estates, provides an in depth analysis of a court opinion handed down this month in the Southern District of California which found personal liability for unpaid estate taxes.

Around the Water Cooler this morning, we look at decanting (of trusts, not wine), a fascinating story of business succession done well from Canada, the 100th anniversary of the estate tax and September interest rates.

Finally . . . September interest rates.  The current § 7520 rate for use with estate planning techniques such as GRAT’s, CRT’s, CLT’s, and QPRT’s is 1.4%. The applicable federal rate (“AFR”) for use with an intra-family loan having a duration of 3 – 9 years, a sale to a defective grantor trust,  or a self-canceling installment note (“SCIN”) is 1.22%.

The low § 7520 and applicable federal rates continue to present planning opportunities with GRAT’s, sales to defective grantor trusts, SCIN’s and intra-family loans with depressed assets that are expected to perform better in future years.

On August 2, 2016, the IRS issued proposed regulations which would eliminate a common estate tax planning technique for transfers of ownership interests in family-controlled entities, like family limited partnerships and family limited liability companies.  Holly Bastian and Lynn Pearle describe the proposed regulations and the impact on planning in Lexology.

Leah McElmoyl describes “The Top Five Responsibilities of a Trustee of a Special Needs Trust” in JDSupra.

In the Madison State Journal, Dan Caplinger writes about a common estate tax planning technique, the Irrevocable Life Insurance Trust.

The CPA Practice Advisor offers another look at the benefits of Irrevocable Life Insurance Trusts.

Forbes highlights the need for trust planning for minor children.

Shawn Gardner writes about Trust Protectors, an increasingly common tool in estate and trust planning, in the Yuma Sun.

In ThinkAdvisor, Adrienne Penta offers Top 5 Tips for Nonprofessional Trustees.

  • Wrapping up The Water Cooler this morning, two stories at the intersection of presidential politics and the world of exempt organizations:

As first reported by Richard Pollock of the Daily Caller, the IRS Commissioner has referred congressional charges against The Clinton Foundation to the IRS exempt organizations office for investigation; and

In Nonprofit Quarterly, Erin Bradrick offers her perspective on Donald Trump’s rhetoric calling for the repeal the Johnson amendment.

 

Around the water cooler this morning, there are articles on charitable remainder trusts, the net investment income tax, and a dispute brewing over the estate of Frank Zappa.

Amber Curto and Phil Jang in the National Review and Brude Udell in Kiplinger’s, examine the use of charitable remainder trusts.

In NIIT Again!, Keith Grissom offers techniques to reduce the net investment income tax.

In the LA Times, Randall Roberts takes a detailed look at the dispute brewing over the estate of Frank Zappa, the legendary musician.

We’ll lead off this morning with a piece on the developing Schwan Foundation litigation.  In the Nonnprofit Quarterly, Michael Wyland reports on oral arguments before the South Dakota Supreme Court over the issue of whether two of the founder’s sons who serve on the Trustee Succession Committee have legal standing to gain access to documents detailing foundation investment losses of $600 million.  It is interesting to note that while the South Dakota Attorney General found no criminal wrongdoing in the investment losses, the AG did not investigate whether there was a breach of fiduciary duty.  It would certainly seem that the sons’ access to the documents would be essential in order to determine if there has been a breach of the Trustees’ fiduciary duties.  There is a link in the story to the oral argument.

In JDSupra, Jeana Goosman writes about a common asset protection tool, the Domestic Asset Protection Trust.

And in celebrity news, Natalie Robehmed reports in Forbes that Prince passed away without a Will.