Many banks and financial services companies offer a variety of services related to creating and managing trusts. When large trusts are established for minor children, it is necessary to use a professional trustee, but there are no guarantees that the professional trustee will carry out their fiduciary duties appropriately.
Tragically, seven year old Angela Militello became an orphan when her parents passed away in Midland, Texas. The Militello family was well off and had prepared for such a circumstance with a large trust that was managed by Wells Fargo bank. There were no problems for many years, or so it seemed. When Ms. Militello divorced in 2006, she contacted the trustee to take $200,000 from her trust so that she could buy a home for herself and her children. The money was given to her, and she was asked to sign paperwork approving the sale of a third of the entire trust’s assets. In the next few weeks, the remainder of the trust assets were sold.
In and of itself, this is not an unusual story. A beneficiary of a trust needs cash for a particular purpose and to obtain the cash trust assets need to be sold.
The unusual aspect here is that Militello later sued Wells Fargo for fraud. She claimed that the bank conspired with a third-party to sell the trust assets at below market value. After a trial a Texas judge agreed with Militello and ordered Wells Fargo to pay $8 million in damages. The Dallas Morning News reported this story in “Judge: Wells Fargo to pay $8M for fraud tied to trust set up when Dallas woman was orphan.”
The lesson here is that even when using the services of a professional trustee, such as a bank, trust beneficiaries should always pay attention and make sure the trustee is not acting for its own benefit.