French v. Wachovia Bank, N.A.

In 1968 French founded a successful manufacturing firm that he sold, in 1996, for about $200 million. French executed interlocking irrevocable trusts to benefit his four children upon his death. In 2004 he moved the trust accounts to Wachovia Bank. The trusts held two whole life insurance policies. Wachovia replaced the policies with new ones, providing the same benefit for a significantly lower premium, after months of evaluation and consultation with French and his lawyers. Wachovia received a hefty but industry-standard commission for its insurance-brokerage affiliate. French’s adult children sued Wachovia for breach of fiduciary duty by self-dealing. The district court rejected the claim, based on the trust document’s express conflict-of-interest waiver, and held that the transaction was neither imprudent nor undertaken in bad faith. The court ordered the Frenches to pay the bank’s costs and attorney’s fees. The Seventh Circuit affirmed. The trust documents gave Wachovia broad discretion to invest trust property without regard to risk, conflicts of interest, lack of diversification, or unproductivity. The trust instrument overrides the common-law prohibition against self-dealing and displaces the prudent-investor rule. While there is always a duty to administer the trust in good faith, there was no evidence that the bank acted in bad faith. View "French v. Wachovia Bank, N.A." on Justia Law