In re Estate of Janes

90 N.Y.2d 41, 659 N.Y.S.2d 165, 681 N.E.2d 332 (1997)

 

RULE:

A fiduciary holding funds for investment may invest the same in such securities as would be acquired by prudent (persons) of discretion and intelligence in such matters who are seeking a reasonable income and the preservation of their capital. When a fiduciary's imprudence consists solely of negligent retention of assets that it should have sold, the measure of damages is the value of the lost capital.

FACTS:

A testator died leaving three trusts, including a marital deduction trust for the benefit of the testator's wife. His wife and petitioner trust company were appointed co-executors of the estate but testator's wife, who had only a high school education and was found to be very inexperienced when it came to financial decisions, left the administration of the trusts to the trust company. Over the next several years,  the trust, which consisted of a large amount of one type of stock, lost much of its value as the value of the stock dropped from $139 per share at the time of the testator's death to $47 per share.  The testator's wife filed this action, seeking to surcharge the trust company for losses incurred by the estate. Upon testator's wife's death, personal representatives for her estate  took over the cause of action against petitioner trust company. Subsequently, the trial court awarded a surcharge against the petitioner trust company, which was affirmed by the appellate division but the amount of damages was modified.  The trust company petitioned the Court of Appeals of New York for further review.

ISSUE:

Did the trial court err when it imposed a surcharge on executor trust company for failure to diversify estate's assets? 

Dd the trial court err when it determined the damages?

ANSWER:

No; maintaining a concentration of one stock violated critical obligations of a fiduciary in making investment decisions under the prudent person rule. Yes; the measure of damages is the amount of the capital lost, not lost profits or market index.

CONCLUSION:

The court affirmed a surcharge on a co-executor trust company because failing to consider the investment in one stock in relation to the entire portfolio and maintaining a concentration of one stock violated certain critical obligations of a fiduciary in making investment decisions under the prudent person rule. The calculation of a surcharge award is the amount of the capital lost, not lost profits or market index measure of damages.

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