On Friday, June 7, 2013, the Alaska Supreme Court issued an opinion in favor of a trust advisory committee that had sued Wells Fargo Bank, NA. The reversed the trial court’s failure to either award the trust committee attorneys fees or adequately explain why there were not entitled to fees.
The trust advisory committee spent four years seeking property insurance premium and coverage information from the trustee. The committee then sought a superior court order to get the documents they were entitled to and for an attorney’s fees award under Alaska Civil Rule 82. The superior court granted approximately half of the committee’s information and document requests and compelled the trustee to provide copies of the insurance policy. The trial court then ruled that neither party clearly prevailed and denied the committee’s attorney’s fees request. The committee appealed, arguing that the superior court misinterpreted Rule 82 and abused its discretion by not determining that the committee was the prevailing party entitled to a fee award. The Supreme Court reversed.
When someone sets up a trust you need a trustee that will do the legal compliance, managment and administration of the trust. Frequently people will use a corporate trust for these mundane but necessary activities. Corporate trustees tend to make more money the larger they grow the trust. Accordingly, they are particularly hesitant to pay out income or principal from the trust. Accordingly, you may decide to implement a cotrustee or trust advisory committee to make decisions about spending the trust income and principal.
In the reported case the trust committee noticed that the insurance costs increased dramatically over privately placed policies. So they asked for a copy of the policy. Wells Fargo didn’t want to produce the policy because they no longer had a single policy. They had written a master policy that covered all the real property under its management for over 7,000 different trusts. Furthermore, they had written the policy by and through one of its other subsidiaries. Wells argued that this practice gave them a competitive advantage in the trust business and they didn’t want their secrets revealed.
Increasing the insurance costs on trust corpus under its management is a competitive advantage because they can then make more money than their competitors at the same basic trust fee schedule. By placing the insurance with their own related entities they make money on items that they are billing as costs. Most settlers and trust committee’s will never look at a proposed trustee’s business practices for self dealing on the insurance and ancillary services. When you are evaluating corporate trustees, add this to your list of items for due diligence.