Generally, the governing instrument may alter restrictions contained in statute or in the Common Law. See, for example E&T Art. § 7-401(a): “[A] personal representative may exercise all the power or authority conferred upon him by statute or in the will, without application to, the approval of, or ratification by the court. Except as validly limited by the will … a personal representative may” also exercise certain enumerated powers as set forth in the statute. Generally when powers are added in a will they are drafted to apply to both personal representatives (generally a relatively short term or transitional position) and the trustee (generally a longer term position).
2.6.1 One typical provision authorizes a fiduciary to invest in securities that may be too risky to qualify under the “prudent person” rule. If it is anticipated that a major portion of a trust (or estate) is stock or some other ownership interest in one business — perhaps the testator(rix)’s business — a provision negating normal diversification rules should be included. Generally, it is a good practice to name the business interest that may comprise a large part of the trust and give authority to continue and perhaps expand such investment.
2.6.2 Another provision may be to permit the fiduciary to invest in non-income producing property — for example if part of the family home or farm is put into trust. In this situation, additional powers to permit the income beneficiary to reside in the property is advisable. If the trust is a QTIP trust, any power to retain non-income producing property should be contingent on the surviving spouse’s explicit permission.
2.6.3 Generally, if a closely held business is part of the assets, it is a good idea to give powers to operate such a business to the fiduciary. Although limited powers are contained in Est. & Trusts Art. § 7-401(s), these are too limited in purpose (solely to preserve the value of an unincorporated business), time (4 months without a court order), and specifics (continue an unincorporated business) to do the job. In addition, creating a power-to-operate-a-business clause that is tailored to the actual circumstances of the client is a useful way to focus such planning. Some of the areas to discuss include: whether other estate or trust funds may be applied to the running of the business, whether the fiduciary will be paid extra amounts for running the business, power to borrow, power to hire and fire, power to delegate management tasks, etc.
2.6.4 The tension between instructions concerning the retention of particular investments and unforeseen circumstances has produced litigation. One dramatic instance of this tension was Matter of Dumont, 2006 N.Y. Slip Op. 866; 2006 N.Y. App. Div. LEXIS 1301, 2006 WL 259834 (2006). Mr. Dumont wanted to preserve his Eastman Kodak stock for the remaindermen of his trust and so he provided in his will: “It is my desire and hope that [the Kodak stock] will be held by my said Executors and by my said trustee to be distributed to the ultimate beneficiaries under this Will, and neither my Executors nor my said trustee shall dispose of such stock for the purpose of diversification of investment and neither they or it shall be held liable for any diminution in the value of such stock.” The Will also provided: “The foregoing provisions shall not prevent my said Executors or my said Trustee from disposing of all or part of the stock in Eastman Kodak Company in case there shall be some compelling reason other than diversification of investment for doing so.” The Surrogate surcharged the trustee, J.P. Morgan/Chase, over $24 Million because it failed to timely sell the Eastman Kodak stock. The intermediate appellate court reversed on narrow grounds (the Surrogate based its surcharge on the assumption that the stock should have been sold on a particular date not alleged by the remaindermen). Nevertheless, this case illustrates that care must be used in drafting and implementation of these sort of clauses.
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