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In re Estate of Janes | 681 N.E.2d 332 (1997)
In many states, a trustee has a duty to invest and manage trust property as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In the 1997 case In re Estate of Janes, the Court of Appeals of New York considered whether a trustee breached its duty under this so-called prudent investor rule by failing to diversify certain shares of stock that drastically decreased in value over time.
In 1969, Rodney Janes, a state senator and businessman, created a will that left most of his estate to three testamentary trusts. The first trust was a marital deduction trust consisting of approximately one-half of his estate, which was to be paid to Janes’s wife, Cynthia, during her life. The second trust was a charitable trust consisting of approximately one-quarter of his estate, which was to be paid to certain charities. The third trust made up the balance of Janes’s estate, which was to be paid to Cynthia during her life and to the charitable trust upon Cynthia’s death.
On May 26th, 1973, Janes died and was survived solely by Cynthia. At the time of his death, Janes’s estate, worth $3,500,000, consisted mostly of an investment stock portfolio. The biggest item in that portfolio was 13,232 shares of Eastman Kodak Company common stock. At the time, the Kodak stock was worth $1,786,733, or approximately $135 per share.
On June 6th, 1973, Janes’s will was admitted to probate. Janes’s named trustee, the Lincoln Rochester Trust Company, and Cynthia were appointed as co-executors of his estate.
Between 1973 and Lincoln’s initial accounting in 1980, Kodak shares plummeted to $47 per share. As a result, the value of Janes’s estate significantly decreased during this time.
Subsequently, Cynthia and the charitable beneficiaries objected to Lincoln’s accounting and sought a surcharge based on Lincoln’s negligent failure to diversify the estate’s assets. The probate court sustained the objections, finding that Lincoln’s retention of Kodak stock was imprudent. The probate court imposed an approximate $6,000,000 surcharge on Lincoln, and Lincoln appealed. The appellate division affirmed but modified the surcharge amount to $4,000,000. Both parties appealed the decision to the Court of Appeals of New York.
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