Fiduciary Duties — Retention vs. Diversification

Wood v. U.S. Bank, N.A., 828 N.E.2d 1072 (Ohio Ct. App. 2005), demonstrates that trust language allowing the retention of the stock of a corporate trustee does not negate the duty to diversify.

The decedent’s inter vivos trust allowed the trustee to retain property added to the trust including shares of a corporate trustee.  After the decedent’s death, the corporate trustee sold other assets to raise necessary cash increasing the concentration in its own stock to 86%.  The stock declined greatly in value during the two-year period between death and the final distribution of the trust.

The court held that the permission to retain stock in the trustee overrode the duty of loyalty but that express language is necessary to override the duty to diversify as expressed in Ohio’s version of the Uniform Prudent Investor Act which codified the common law of diversification.  A retrial was necessary to determine if the statutory “special circumstances” excusing a lack of diversification were present.

Special thanks to Rita and Joseph Solomon  Prof. William P. LaPiana for contributing this case.