Merrill Lynch faces a growing legal headache as the custodian of generation-skipping trust accounts. The wirehouse’s lawyers are scheduled to appear today at a federal court hearing in Ohio at which adult children will ask a judge to issue a restraining order barring their mother or the wirehouse from using any of the assets that had been in generation-skipping trusts set up by their grandmother.
In their lawsuit, the children allege that Merrill Lynch, as the custodian of the assets, assisted their mother by using assets in irrevocable trusts which their grandmother established for each of them. Their mother apparently set up a new trust for the purposes of funneling their assets into it and picked as a co-trustee a man serving jail time after being convicted of stealing from his father, according to the lawsuit.
Merrill Lynch views itself as an innocent bystander in this legal battle.
“The plaintiffs have not alleged any misconduct by Merrill Lynch, and we look forward to guidance from the court as to the resolution of this family’s dispute,” says a spokesperson for Bank of America, Merrill Lynch’s parent company.
But the litigation highlights how tricky it can be for FAs to oversee even mere custodial tasks when family disputes about inherited assets arise. It’s a challenge to sustain bystander status.
The grandmother created the irrevocable trust accounts at each of her heirs' births to provide support for her grandchildren, the lawsuit alleges.
Throughout their lives, the grandmother intended her grandchildren to receive cash distributions from the trusts for “their exclusive benefit,” the lawsuit alleges.
Otherwise, the assets were to remain in trust until her grandchildren “reached certain milestones in their lives,” according to the lawsuit.
In 2000, when the grandmother resigned as trustee due to age, their father assumed those responsibilities, according to the grandchildren’s lawsuit.
For roughly two decades, the grandchildren, “having no information or knowledge” about the trust’s terms, “did not demand distribution of the assets,” even though they could have started doing so when they each reached 21 years of age and then were scheduled to receive full distributions upon turning 25, the lawsuit alleges.
But this year, when they began to inquire about the trusts, they learned from their mother that she had replaced their father as trustee, the lawsuit alleges. Eventually, the children discovered she “had unilaterally transferred the assets into a new trust with new trustee powers and control,” the lawsuit alleges, adding that the mother “essentially admits self-dealing.”
The mother had “installed herself as a co-trustee, with the authority, power, and right to amend or revoke, without prior notice or consent of the beneficiary," the lawsuit claims. The new trust purports to entitle the mother “to all net income and as much principal from the trust property as the trustee determines is necessary” for her health, education, maintenance, support, comfort, and welfare, the lawsuit alleges.
The mother also installed as co-trustee a “friend” who currently resides in a New Hampshire state prison, the lawsuit alleges. He was sentenced to 30 years based on charges of stealing from his own father and owing some $409,000 in restitution to his father’s estate, according to the lawsuit.
The lawsuit states that in February this year, when some of the adult children began to make inquiries, a Merrill Lynch FA told one of them that the parents still needed to turn the account over to her name. But the FA understood that the trusts’ terms required each of the children to receive all the assets when they turned 25, the lawsuit alleges.
In an email to her children later that month, the mother told them that the Merrill Lynch FA was incorrect, according to the lawsuit.