Around The Water Cooler this morning, we’re talking about investing trust assets, trust distributions for health and education, generation skipping transfer taxes, and the Uniform Fiduciary Principal and Income Act.

  • Emily Bruner offers considerations for investing assets of Grantor Trusts, Non-Grantor Trusts, Insurance Trusts and Charitable Trusts in Investing for Trusts.
  • Griffin Bridgers and Christopher Harrison provide practical insights on trust distributions for the purposes of health and education in Health and Education in Trust Administration.
  • In Diagnosing the GST Tax Status of a Trust, Nathan Brown and Brandon Ross offer an outstanding analysis at the intersection of trusts and generation skipping transfer taxes.
  • A drafting committee of the Uniform Law Commission has been hard at work on the Uniform Fiduciary Principal and Income Act (“UFIPA”), a revised act to the Uniform Principal and Income Act (“UPIA”).  UFIPA retains the power to adjust and the default income and principal allocation rules in UPIA, and UFIPA includes a broad unitrust provision.  The drafting committee should complete its work this summer.



This is the final installment of a series of posts that examine recent litigation against bank trustees in Mississippi.  For the prior installments, please see Regions Hit with $4M Judgment over Trust Mismanagement and Renasant Settles Trust Mismanagement Litigation.

While it is critical for a corporate Trustee to have a process, it is equally important that a corporate Trustee not only follow its process but also document adherence to the process.  The story that follows demonstrates the result when a corporate Trustee has a process but the process is not followed or documented (and a cover-up ensues).


When Dr. William Rosenblatt, a prominent physician, passed away in 1991, his Last Will and Testament created a trust for the benefit of his children and grandchildren.  Dr. Rosenblatt appointed Trustmark National Bank to serve as one of the co-Trustees of the trust.  The head of Trustmark’s Personal Trust Department was the trust officer assigned by Trustmark to manage the trusts.

The Last Will and Testament provided that the primary purpose of the trust is “to maintain . . . my children, or their issue . . . in the standard of living to which they are accustomed.”  In order to further the purpose of the trust, the Last Will and Testament required the Trustee to distribute all of the net income to Dr. Rosenblatt’s children, Cy and Dee.  In addition to mandatory distributions of net income, the Trustee had the discretion to invade the corpus of the trust and distribute trust principal in order to meet any “emergency needs” of Cy and Dee in which the trustee in its sole discretion determines and justifies.  Upon the death of Cy and Dee, the trust would then terminate and the assets of the trust would pass to Cy’s children and Dee’s children (the remainder beneficiaries).

From 1991 when Dr. Rosenblatt passed away until 2002, Trustmark distributed all of the net income to Cy and Dee.  Cy and Dee made no requests for principal distributions until 2002, when the trust was split into two trusts, one for Cy and one for Dee.  After the trust was split into two trusts, each trust was valued at approximately $3.8 Million.


In 2002, Trustmark began to invade and distribute the corpus of Dee’s trust which ultimately sparked litigation.  In 2002, Trustmark made a distribution of principal in the amount of $32,000 so Dee could purchase a Lexus vehicle.  Over the next 6 years, Trustmark invaded the corpus of the trust 150 times and distributed over $1.75 Million to Dee.

The distributions of principal stopped in 2008.  In August of that year, Dee requested a distribution of principal in the amount of $65,000 to pay a bill at a high-end clothing store.  It was at that time that Trustmark contacted one of the remainder beneficiaries, Dee’s daughter Meg, and asked for her consent before Trustmark made the distribution.  When she was informed of the number and amount of principal invasions between 2002 and 2008, Meg was shocked and refused to give her consent to the distribution.  In 2009, Meg sued Trustmark for numerous breaches of fiduciary duty.  Sadly, as seen too often in trust litigation against bank trustees, Trustmark promptly sued the beneficiaries of the trust.


As the Court noted in its Opinion, whether the 150 invasions of corpus totaling over $1.75 Million were for “emergency needs” as required by the Last Will and Testament will never be known because Trustmark did not follow the proper procedures to find out.  Trustmark’s Policies and Procedures state that committee approval is required if any distribution of income or principal is discretionary and that complete information regarding the beneficiary’s needs, standard of living and other resources shall be considered by the committee members in making the decision to exercise the discretionary distribution.  In addition, The FDIC Audit Manual requires that the reason for each invasion be documented in the file.

Contrary to Trustmark’s Policies and Procedures, committee approval was never sought or obtained for any of the 150 invasions of corpus.   The Court explained the process of invading the trust as such: Dee would leave a voice message with the trust officer who would then give his assistant instructions to transfer funds to Dee.  As the Court noted, “this all occurred without Trustmark following any of its procedures.”

Likewise, contrary to the FDIC Audit Manual requirement that the reason for each invasion be documented in the trust file, Trustmark had no forms or documentation on any of the 150 corpus invasions.


Since he had not received committee approval for or documented any of the 150 invasions of corpus, the head of Trustmark’s Personal Trust Department forged “Request for Encroachment” forms which contained the signatures of other trust officers.  He then placed these forms in the minutes of the Administrative Committee in order to create the appearance that the committee in fact did approve the 150 invasions of corpus.


In a scathing Opinion, the Court found Trustmark liable for multiple breaches of fiduciary duty.  In so finding, the Court described Trustmark’s actions as “willful, grossly negligent and overall egregious,” “grossly derelict,” and “reckless and egregious.”


The Court imposed the following damages:

  • Removed Trustmark as the Trustee;
  • Imposed a surcharge on Trustmark in the amount of $1,755,750;
  • Charged Trustmark interest at a rate of 3% compounded annually for each and every invasion of corpus, beginning on the last day of the year in which each distribution was made (a total of approximately $300,000);
  • Awarded the Plaintiff all of her Attorneys’ fees (a total of $321,630);
  • Charged all costs to Trustmark;
  • Charged post-judgment interest against Trustmark; and
  • Awarded the Plaintiff punitive damages in the amount of $100,000.

The Court specifically noted that a punitive damage award of $100,000 is “nominal considering Trustmark’s egregious conduct and substantial net worth.”  The Court found that Meg benefitted from some of the trust distributions, e.g., for her wedding.  The Court held that “had Meg not benefitted from Trustmark’s grossly negligent conduct, an award of punitive damages would likely have been greater.”

Courthouse Columns with The Statue of Justice

This is the first in a series of posts that will examine recent litigation against bank trustees in Mississippi.

After five years of litigation, last week a Chancery Court in Mississippi found that Regions breached numerous fiduciary duties with respect to the administration of the Patricia Hall Sheppard Trust and ordered Regions to pay in excess of $4M.  (for full text of Court Orders, see Order and Opinion on liability and Order and Opinion on damages)


J. E. (“Buddy”) Sheppard, Sr. departed this life in 1997 leaving behind his wife, Patricia, and two children, Victoria and Bud. Buddy’s Last Will and Testament established a trust for the benefit of Patricia, and he appointed Deposit Guaranty National Bank, which through mergers and acquisitions became Regions, as the Trustee. The terms of the Last Will and Testament require that the Trustee distribute all of the net income, at least annually, to Patricia.  In addition, the Trustee may distribute trust principal only if one of three conditions were met: (1) the net income is insufficient to enable Patricia to maintain her standard of living, (2) an emergency arises, or (3) Patricia has any health care needs.  Upon Patricia’s death, 80% of the remaining trust property would be held in trust for the benefit of the children, Victoria and Bud.

The trust established for Patricia’s benefit was funded in 1998 with approximately $2.5M in liquid assets and 33 residential rental properties, which the court characterized as “the largest rental property portfolio in Mississippi.”  Regions served as trustee from 1998 to 2011 when Patricia removed the bank as trustee and brought suit against Regions.

While the Court found many breaches of fiduciary duty, two are particularly concerning; those concerning distributions of principal and management of the real estate.

Distributions of Principal

The regular operating procedure was to give Patricia anything she asked for and he had no idea how Patricia spent the money that was disbursed.

During the time that Regions administered the trust, Patricia thought that she was receiving only distributions of income from the trust.  In fact, Regions began distributing principal from the very outset of the trust, in 1998.  In 2009, a trust officer informed Patricia that the trust principal had been severely eroded and that the liquid assets were worth less than a million dollars at the time.  In fact, in the 13 years that Regions administered the trust, the trustee distributed trust principal 765 times in a total amount of $3,617,250.  What makes matters worse is that while Regions was distributing trust principal, it was not even distributing all trust income, as mandated by the Last Will and Testament, in a number of years.

None of the distributions of trust principal were for emergency needs and only $10,898 were for health care related expenses.  Presumably, the other distributions were to enable Patricia to maintain her standard of living.  However, as the Court notes in its Opinion, “Regions never ascertained what [Patricia’s] standard of living consisted of”; that is, Regions never performed a needs analysis or determined what expenses Patricia had.  As the trust officer testified, the regular operating procedure was to give Patricia anything she asked for and he had no idea how Patricia spent the money that was disbursed.  The investment officer assigned to the trust testified that “we’d make distributions whenever she asked.”  As the Court observed, Regions could never determine if the principal disbursements were maintaining Patricia’s standard of living because Regions never knew what her standard of living actually was.

Management of the Real Estate

The words reasonable and prudent are not synonymous with loosey-goosey.

Shortly after Regions began administering the trust, the bank delegated management of the real estate to Orville Hall, Mrs. Sheppard’s brother.  As such, Orville was responsible for collecting rent, making repairs, and documenting vacancy rates.  In delegating one of its functions as the trustee, Regions had a duty to exercise reasonable care in delegating management of the real estate and had a duty to review and monitor the agent’s actions.  Regions’ failure in this regard is alarming.  The Bank’s own in house trust real property manager testified that he:

  • Did not know if anyone at the Bank was checking to ensure all rental payments were accounted for;
  • Did not review Orville’s invoices;
  • Did not know if Orville’s invoices for services and repairs were reasonable;
  • Never monitored the net income of the rental property;

When asked if Regions’ management of the real property could be described as “loosey-goosey”, the Bank’s in house trust real property manager replied, “some of the procedures seemed to be a little on the lax side.”  The court found that “the words reasonable and prudent are not synonymous with loosey-goosey.”  Regions own expert witness testified that Regions did not have definitive rules, but testified that that was not necessarily a bad thing and that only the bottom line counts.  As the court noted, “that sentiment is not correct in the terms of the duties that a trustee has with its beneficiary.”

In 2010, Regions began an investigation into the trust to determine if someone within the trust department was stealing money.  The Bank’s internal investigator determined that Orville was reporting that rent was collected but that the rent was not accounted for in the bank’s records.  In his report, the Bank’s internal investigator determined that the real estate was not being handled properly and that there was a failure of institutional controls.  The investigator submitted his report to the Bank’s Human Resources department and assumed that Human Resources would meet with the trust department to discuss the report and make necessary changes within the trust department.  However, the Human Resources Department never forwarded the report to the trust department and the Bank’s own in house trust real property manager testified that he saw the report for the first time on the witness stand.  Not surprisingly, Orville, who in fact was not a licensed real estate broker, had little to no experience managing real estate, and spent most of his time in Tennessee while all of the real property was located in central Mississippi, disappeared while the Bank’s internal investigation was ongoing.


After entering its Order finding liability, the Court appointed two special masters to assess damages.  One of the special masters resigned, and the other special master amended his report a number of times before submitting a final report.  The Court adopted the special master’s final report and awarded damages in the amount of $3,363,026 plus prejudgment interest in the amount of 8%, for a total of over $4M.