Occasionally when I am working with trustees I am amazed at how they interact with the grantors of their ILITs. It is as if they do not understand that the grantor is not their client, the beneficiaries are. These are irrevocable trusts and the grantor supposedly has no retained interest. Oh I know…the grantor is paying the fee and the grantor is funding the ILIT and so it seems the grantor is the client. And I understand that often the grantor has other relationships and accounts that typically generate much higher revenues than the ILIT. But this should never cloud the trustee’s judgment. It is the beneficiary that the trustee is really working for…maximizing the benefit of the trust for the beneficiary. I often say to our clients…you can get warm and fuzzy with the grantor, but it is the beneficiary who will sue you.

In fact, in the 2012 case of Schwab, et al. v. Huntington National Bank, it was found by the court that the grantor of an irrevocable trust even lacked the standing to sue the trustee for alleged breach of fiduciary duties.

In another case, Paradee v. Paradee, the trustee and a non-fiduciary family member were found liable to the beneficiary because of a trust transaction. The court ruled that “instead of evaluating what was in the best interests of the Trust, (the trustee) evaluated whether he could please his long-time clients.” While the trustee in this case was not a bank or trust company, the lesson should be learned by those in the corporate trust community.

These two cases highlight the validity of the “warm and fuzzy statement” I made above. Your job as trustee is focused on maximizing the benefits to the beneficiary. Your relationship with the grantor, business or otherwise, is secondary and should not affect or color your responsibilities to the beneficiary.

By |2013-06-26T14:05:15+00:00June 26th, 2013|Categories: Policy Management, TOLI Administration|1 Comment

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  1. […] at any time.  In fact, the document highlights something I had written about in a prior Blog (Make Sure You Know Who Your Real Client Is), “bank fiduciaries are responsible for protecting and managing the life insurance policy for the […]

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