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Wood v. U.S. Bank, N.A. - 2005-Ohio-2341, 160 Ohio App. 3d 831, 828 N.E.2d 1072

Rule:

Duties owed by a trustee to the beneficiaries are well established. A trustee shall diversify the investments of a trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying. Ohio Rev. Code Ann. § 1339.54(B). This duty may be expanded, restricted, eliminated, or otherwise altered by the trust instrument. Ohio Rev. Code Ann. § 1339.52(C). This duty, imposed by the Uniform Prudent Investor Act, Ohio Rev. Code Ann. § 1339.52 et seq., is the same one recognized by the common law--the common law is now codified.

Facts:

The trust held stock of the corporate trustee. The trust authorized the trustee, U.S. Bank, N.A., to retain its own stock, but it was silent as to the trustee's obligation to diversify. Although the trust beneficiaries did not object to a plan to sell off some stock in order to pay the estate expenses, they later requested that the trustee diversify the holdings, which it did not do. Thereafter, the trustee's corporate stock price plunged, and the distributions to the beneficiaries were made from the decreased assets. One of the trust beneficiary's, Dana Barth Wood, filed suit in  the Hamilton County Court of Common Pleas (Ohio), alleging that the trustee Bank had a mandatory duty under Ohio Rev. Code Ann. § 1339.54 to diversify. The county court denied all of Wood's motions for a directed verdict, judgment notwithstanding the verdict (JNOV), and a new trial, and rejected instructions based on the Uniform Prudent Investor Act, Ohio Rev. Code Ann. § 1339.52 et seq. After the county court adopted the Bank's abuse of discretion and estoppel instructions,  it entered judgment in favor of the trustee. Wood appealed.

Issue:

Did the trial court err in adopting the Bank trustee's abuse of discretion and estoppel instructions to the jury?

Answer:

Yes

Conclusion:

The state appellate court held that the abuse of discretion standard was improperly provided to the jury, as an instruction pursuant to Ohio Rev. Code Ann. § 1339.54(B) was warranted. The power to retain the trustee's own stock was for the purpose of circumventing the rule of undivided loyalty only, and diversification was required absence special circumstances. There was at least enough evidence of special circumstances to avoid a directed verdict.

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