Banks Can be a Logical Choice to Manage Complex Estates, But Disputes Can Still Land in Court

Posted on March 29, 2018 by Amanda DiChello

Appointing a corporate trustee to administer an estate can be a wise move in situations that call for an experienced, impartial referee, particularly when the estate involves millions of dollars, a large portfolio of assets, and a generous helping of family drama. Picking a financial institution as the corporate trustee of a complex estate may seem like a no-brainer because of the necessary financial and legal experience required.

And yet, disputes continue to arise between beneficiaries and the institutions chosen to be the corporate trustee. One recent high-profile example involves Prince, who died unexpectedly in 2016 at age 57 and left a $200 million estate amassed over the course of his music career, five half-siblings as his heirs, and no will. In October, three of the heirs asked a state court to remove Comerica Bank as personal representative to the estate because they aren’t happy with the bank’s decisions. The heirs complain that Comerica improperly defended a previously negotiated $31 million music deal, moved a trove of unreleased recordings to another state, and is generally insufficiently familiar with Prince’s music and business to be an effective representative.

Of course, most estates don’t involve record deals and unreleased music belonging to late music icons. But claims that a corporate trustee mismanaged an estate can still wreak havoc on the timely settlement of a decedent’s affairs and beneficiaries’ inheritances.

When Max Hopper, a former American Airlines executive, died from a stroke in 2010, at age 75 and without a valid will, his widow and two adult children from another marriage turned to JPMorgan Chase & Co. to administer his $19 million estate. Seven years and multiple lawsuits among the parties later, a Dallas jury awarded the family $8 billion for allegedly mismanaging the estate. That shockingly high award, most of which is punitive damages, will likely be reduced significantly on appeal, a process that will consume even more time and legal fees to litigate.

Among the family’s complaints, they accused JPMorgan Chase of fraud, breach of fiduciary duty and breaking a fee agreement. Further, they argue that it took the bank so long to release Hopper’s stock options that some of them expired and that the bank dragged its feet on releasing Hopper’s artwork, home furnishings and collections of 6,700 golf putters and 900 bottles of wine. Hopper’s children also contended that the bank kept them out of the loop on some decisions in order to curry favor with their stepmother, Hopper’s widow.

JPMorgan Chase fired back in its appeal, arguing that disagreements and mistrust between Hopper’s widow and his children were at the heart of the estate distribution issues, Bloomberg noted.

Somewhat ironically, guidance issued by JPMorgan Chase to its customers addresses how to choose a corporate trustee and includes advice related to issues raised by Hopper’s heirs in court. For example:

Ask about potential trustees’ experience. While the JPMorgan Chase executive in charge of managing the estate had nearly 20 years of experience on estate cases, the family maintained she had previously worked on only one case where the decedent died intestate, according to D Magazine.

Meet with potential trustees. It’s important that the trustee chosen to work with members of the family and other beneficiaries have a good rapport with all parties and be able to handle disputes that arise.

Clarify fees and costs. Be sure all parties understand upfront what responsibilities are included in the fees charged.

Have an exit plan. As JPMorgan Chase points out, it may not be in everyone’s best interest for a bank to manage an estate indefinitely. Beneficiaries may disagree on the bank’s investment approach or other decisions. Therefore, trust documents should designate a beneficiary or other party to remove the bank as trustee and appoint another one.