Trustees are required to act in the best interests of the trust and its beneficiaries. However, sometimes trustees are tempted to make decisions about a trust’s finances that benefit the trustees’ financial institution more than the beneficiaries.
When Eli Lilly, Jr. passed away, he directed that 10% of his estate be left, in trust, to an Indianapolis church, The Christ Church Cathedral. As reported in the International Business Times in an article titled, “Christ Church vs. JPMorgan: Bank Allegedly Mismanaged Millions,“ Lilly actually left three separate trusts for the church. Each trust was to be handled by a different bank.
The article does not say how, but at least one of the trusts eventually came under the management of JP Morgan. The church alleged that the bank invested trust assets in risky financial ventures controlled by the bank. It further alleged that the bank received more value out of those investments than the trust. The church claimed a loss of $13 million.
This case highlights an inherent risk when trustees are financial firms that sell investment products. The trustees certainly have a financial interest in channeling trust assets into their own products, but that might not always be in the best interests of the trusts. Rival financial firms might have more appropriate investment products for the trust.
Trustees are supposed to act as reasonably prudent investors. Accordingly, they should be investing trust assets wisely and not just in the products they sell.
That is not to say all financial firms will make poor trustees. However, it is something to consider when designating a trustee. It is not always a good idea to choose a trustee who might have an interest in using trust assets to further his or her own firm.
Please contact our office today at 239-225-7911 to schedule an appointment with Barbara M. Pizzolato if you have assets and loved ones that you want to protect.
Reference: International Business Times (August 13, 2014) “Christ Church vs. JPMorgan: Bank Allegedly Mismanaged Millions“