Court of Appeals Upholds Actions of Trustee Because the Trustee Was Authorized To Do What It Did

Court of Appeals Upholds Actions of Trustee Because

the Trustee Was Authorized To Do What It Did

 

In a recent decision, the Kentucky Court of Appeals considered certain criticisms as to the investment of trust assets. Ultimately, it would determine that the actions of the trustee were not subject to the asserted criticisms, essentially on the basis that the trustee was authorized to engage in the complained of conduct. Watkins v. PNC Bank, N.A., No. 2013-CA-001457-MR (Ky. App. Jan. 30, 2015).

 

Lowery Watkins a beneficiary of the Thomas W. Bullitt Fund 3 Trust, brought suit against PNC Bank, trustee thereof (PNC was itself the successor to Citizens Fidelity Bank and Trust Company, the original trustee) asserting that it had violated its duties as a trustee by (1) retaining in the trust PNC stock in violation of the Prudent Investor Rule, (2) that the PNC stock had be retained in violation of the duty of loyalty and (3) that PNC applied trust assets to purchase Black Rock mutual funds in violation of the duty of loyalty. The trial court had granted summary judgment to PNC Bank on all of these counts, and this appeal followed. The Court of Appeals would ultimately affirm the trial court on all three theories of liability.

 

As to the Prudent Investor Rule of KRS 386.3-277, it provides in part that the trustee has a duty to conform the investments to the directions pursuant to the trust instrument.  In this instance, it had been directed that the trust assets would be shares of Citizens Fidelity Bank and Trust, which ultimately became PNC. On this basis, it was determined that PNC did not violate the Prudent Investor Rule. Separately, Watkins challenged the holding of the PNC stock as a violation of the duty of loyalty. Again, consequently to the directive from the trust with respect to holding the stock, when combined with KRS 386.025, there was no violation of the duty of loyalty. With respect to the purchase of the Black Rock mutual funds, with which PNC is affiliated, and the charge of self-dealing, Kentucky law, specifically KRS 386.3-272, allows it to make such investments.  As such, and a cursory basis, the Court determined that PNC did not act improperly in making this investment.

 

In that PNC did what the law and/or the trust instrument authorized it to do, no viable claims arose.