The financial advisor who sells a trustee an insurance contract that is inappropriate in light of the trust's purposes risks primary fiduciary liabilty in equity to non-contracting parties

Charles E. Rounds, Jr.
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It is an understatement that the Minnesota Court of Appeals in In re: Amendment and Restatement of Revocable Living Trust of Alfred J. Berget dated February 15, 2005 [A13-2295, Dec. 8, 2014] afforded the trustee who had invested trust assets in annuity contracts the benefit of every doubt: “Although we have some concerns about the suitability of the variable annuities that…[the Trustee]…purchased in light of the purposes of the trust, we are reluctant to conclude that the district court erred by finding that a lay trustee did not breach her fiduciary duties by purchasing them after receiving and relying on professional advice from a financial advisor who previously served as a financial advisor to the grantor of the trust.” The advisor had sold the annuity contracts to the trustee. In light of the agent-liability provisions of §9(b) of the Uniform Prudent Investor Act and the court’s reasonable-reliance dicta, what about an action against the annuity salesman/financial advisor? The topic of third-party liability of a trustee’s agents is taken up in §7.2.9 of Loring and Rounds: A Trustee’s Handbook [pages 795-803 of the 2016 Edition]. The section is reproduced in its entirety below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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