Opinion ID: 2041034
Heading Depth: 1
Heading Rank: 4

Heading: Breach of Trust

Text: The Beneficiaries' claim for breach of trust is premised on the argument that Bank One wrongfully sold the Lilly stock. Bank One responds that it sold the Lilly stock to comply with the prudent investor rule and, having complied with the rule, it cannot be subject to liability for breach of trust. The prudent investor rule has been made applicable by statute in Indiana and provides in part: In acquiring, investing, reinvesting, exchanging, retaining, selling and managing property for any trust heretofore or hereafter created, the trustee thereof shall exercise the judgment and care under the circumstances then prevailing which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. Ind. Code § 30-4-3-3(c). Bank One asserts that absent an explicit direction in the trust instrument, a trustee is not required to maintain all of the assets of the trust in a single equity security. Bank One also suggests that absent such explicit direction, the prudent investor rule mandates diversification under the circumstances here. Applying the prudent investor rule requires consideration of the particular factual circumstances in an individual case. As the Restatement, Second, of Trusts § 228 page 541 states: Except as otherwise provided by the terms of the trust, the trustee is under a duty to the beneficiary to distribute the risk of loss by a reasonable diversification of investments unless under the circumstances it is prudent not to do so.  (Emphasis supplied.) We do not agree with Bank One that as a matter of law diversification is positively required under the prudent investor rule. The Beneficiaries present several circumstances that raise questions concerning the propriety of diversification. First, they claim that Bank One's motive for selling the Lilly stock was a self-serving attempt to increase the fees chargeable to the Trust and to use cash from the sale of the Lilly stock for investment in Bank One's common trust funds. The Beneficiaries point to internal memoranda of Bank One trust officers that discuss increasing fees charged to the Trust and investment in Bank One's common fund, but do not discuss the best interests of the Beneficiaries. In addition, the Beneficiaries point to Bank One's insistence that all Beneficiaries sign an indemnity agreement before Bank One would consider not undertaking the diversification program. The effect of the indemnity agreement was to hold Bank One harmless for not diversifying the stock concentration, but it did not require Bank One to refrain from selling the Lilly stock. [4] The Beneficiaries argue that because of the high duty of loyalty owed them by their trustee and that the indemnity agreement was written totally in favor of Bank One, they are entitled to an inference that Bank One was acting other than in their best interest. The Beneficiaries also claim that by diversifying the Trust, Bank One failed to preserve Trust assets as required by Ind. Code § 30-4-3-6(b)(4) because the sales of stock resulted in sizeable capital gains tax levied on the Trust corpus. Evidence showed that Bank One was aware of the significant reduction in the Trust corpus that would occur because of the 30% federal income tax imposed as a result of the sale of the stock. Income tax returns show, for example, that in 1972, when diversification began, the Trust paid more than $71,000 in income tax, where, in years before, the Trust had paid none. The Beneficiaries argue that the effect of the stock sales was to permanently reduce the value of the corpus and that this creates a question of fact as to whether Bank One adequately considered preservation of Trust assets. Finally, the Beneficiaries assert that Bank One's misrepresentation as to the existence of a mandate from the National Bank Board Audit staff requiring diversification, standing alone, establishes a question of fact as to whether the diversification of the Trust was carried out for an improper purpose. We conclude that the foregoing points raised by the Beneficiaries are sufficient to establish genuine issues of material fact precluding summary judgment for Bank One. Of course, we are unable to predict whether the Beneficiaries ultimately will be successful in establishing their claim against Bank One, but we conclude that our rules of procedure require that they have an opportunity to attempt to do so. On one part of the claim we find that Bank One is entitled to summary judgment. The Beneficiaries argue that Bank One breached its fiduciary duty when it failed to follow the express intent of the settlor that the Lilly stock be retained in the Trust. Bank One counters that the Trust contains no restrictions on it with respect to the Lilly stock. The primary goal in construing a trust document is to ascertain and effectuate the intent of the settlor. Ind. Code § 30-4-1-3; Powell v. Madison Safe Deposit & Trust Co. (1935), 208 Ind. 432, 448, 196 N.E. 324, 331. Where the terms of a trust document are not ambiguous, we look only to the trust document to determine the settlor's intent, which may be determined as a question of law for the Court. Colbo v. Buyer (1956), 235 Ind. 518, 524, 134 N.E.2d 45, 49. This Court is not at liberty to rewrite the trust agreement any more than it is at liberty to rewrite contracts. Id., 235 Ind. at 525, 134 N.E.2d at 49. When a trust instrument must be construed by the court, then we attempt to discern the settlor's intent in light of the facts and circumstances existing at the time the instrument was executed. Matter of Walz (1981), Ind. App., 423 N.E.2d 729, 734 (citing 76 Am.Jur.2d Trusts, § 17, p. 266 (1975)). The Beneficiaries argue that, at a minimum, the evidence gives rise to an inference that the Trust instrument is ambiguous and that extrinsic evidence bearing on the settlor's intent should be considered. The Trust instrument contains no specific restriction on the sale of Lilly stock. The settlor's Will in existence at the time the Trust was created provided that Lilly stock held in the testamentary trust was not to be sold. The Beneficiaries assert that this Will is the only evidence in the record of the settlor's intent regarding retention of the Lilly stock at the time the Trust was created. However, that Will was revoked and replaced with one in 1942 which required approval of certain trust advisors before Lilly stock could be sold from the testamentary trust created in this latter Will. The 1942 Will made no specific reference to disposition of Lilly stock from the Trust at issue. At least two letters from Bank One trust officers suggest that Bank One believed, at least at the time the letters were written, that the settlor intended the Trust to retain the Lilly stock. [5] We conclude the settlor's intent was clearly expressed in the Trust instrument which contained no restrictions, other than those imposed by law, on the Trustee's selling Lilly stock held by the Trust. We find nothing in the record before us suggesting that the settlor intended to have the provisions of his Will and testamentary trust imposed on the intervivos Trust at issue. Even if the letters written by Bank One trust officers did reflect the interpretation of the Trust instrument that the Beneficiaries ascribe to them, that belief is legally irrelevant where, as here, the letters were written years after the settlor's death. It is the settlor's intent, not the trustee's intent, that controls, and we find no cases suggesting that the Trustee's belief as to the meaning of a trust has any significance when the trust document itself is not ambiguous. Although in some circumstances the interpretation of documents placed on them by the parties may be legally relevant, that is not the case here. The clear terms of the Trust gave Bank One power to invest and reinvest the assets of that Trust. This language grants Bank One the power to purchase assets with the proceeds, dispose of the assets so purchased, and purchase additional ones, within its prescribed duties as Trustee. We find no provision in the Trust requiring the Trustee to retain any particular assets, and conclude that the terms of the Trust are clear and, as a matter of law, may not be varied by extrinsic evidence. Alig v. Levey (1942), 219 Ind. 618, 624, 39 N.E.2d 137, 139.