Stevens v. National City Bank
45 Ohio St.3d 276, 544 N.E.2d 612, 1989 Ohio LEXIS 229 (1989)
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Rule of Law:
When interpreting a will, courts must ascertain the testator's intent from the entire document, distinguishing between mandatory directives and precatory language, and a trustee's general power and duty to prudently diversify trust assets typically prevails over precatory requests; a beneficiary's challenge to trustee actions may be barred by laches if there is an unreasonable and prejudicial delay in asserting rights.
Facts:
- John S. Crider executed a will, which established a trust to be administered by National City Bank.
- Paragraph 6, Item VI of Crider's will granted the trustee 'full power and authority to... sell... invest and reinvest' all trust property 'as it deems advisable and to deal therewith in all respects as though the absolute owner thereof.'
- Paragraph 11, Item VI of the will stated, 'I request that the Trustee retain for the most part the shares in them [Dow and Union Carbide] which may be received from my Executrix,' noting his intention to relieve the trustee of its usual duty to diversify as long as the companies' prospects continued to be favorable.
- Crider had amassed his large estate from the growth of Dow and Union Carbide, and securities from these companies comprised over two-thirds of his estate's assets.
- National City Bank, as trustee, began selling shares of Dow and Union Carbide stock in 1958 as part of a diversification program.
- Stevens, the life beneficiary of the trust, received quarterly and annual reports from the trustee from 1958, which reflected the sales of Dow and Union Carbide stock.
- Stevens never complained to National City Bank about the sales of the stock or instructed anyone else to complain prior to filing her action.
Procedural Posture:
- Stevens, a life beneficiary of the Crider trust, filed an action in a state probate court in 1977, objecting to the trustee's thirteenth partial account and all prior accounts, asserting that the trustee breached its duties by selling Dow and Union Carbide stock.
- The probate court referred the matter to a referee for review and report.
- The probate court implicitly adopted the referee's report and ruled against the trustee.
- The trustee, National City Bank, appealed to the intermediate appellate court, the Court of Appeals.
- The Court of Appeals affirmed the probate court's decision, ruling against the trustee and finding a breach of trust.
- The trustee then appealed the decision to the highest court of the state, the Supreme Court of Ohio.
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Issue:
Does language in a will requesting a trustee to 'retain for the most part' specific stock constitute a mandatory limitation on the trustee's general power to sell and diversify trust assets, and is a beneficiary's challenge to such trustee actions barred by the doctrine of laches after a significant delay?
Opinions:
Majority - Holmes, J.
No, language in a will requesting a trustee to 'retain for the most part' specific stock does not constitute a mandatory limitation on the trustee's general power to sell and diversify trust assets, and a beneficiary's challenge to such trustee actions is barred by the doctrine of laches after a significant delay. The court, guided by the principle of ascertaining and carrying out the testator's intent from the entire will, found that Paragraph 11, Item VI was precatory (advisory) rather than mandatory. This interpretation was supported by the broad discretion granted to the trustee in Paragraph 6, the use of the word 'request' coupled with 'for the most part,' and the testator's use of clear mandatory language ('I direct,' 'the trustee shall') elsewhere in the will, indicating his awareness of how to create binding instructions. Trustees have a well-established duty to diversify trust assets to distribute risk of loss and to act impartially between successive beneficiaries. A trustee authorized, but not directed, to retain investments is not liable for selling them to achieve diversification, provided they act in good faith and within sound discretion, which the National City Bank did. The court further held that Stevens' claim was barred by laches because she delayed nearly 19 years in asserting her rights, had continuous knowledge or notice of the sales through reports, failed to put the trustee on notice of her objection, and the trustee was prejudiced by the delay through changes in personnel, potential loss of records, and increased potential damages.
Analysis:
This case provides crucial guidance on testamentary trust interpretation, particularly the distinction between mandatory and precatory language, reinforcing that broad grants of trustee power are not easily limited by precatory statements. It solidifies the trustee's fiduciary duty to diversify investments as a core component of prudent management and impartial treatment of beneficiaries, even when a testator expresses a 'desire' to retain specific assets. Furthermore, the court's application of the laches doctrine emphasizes the importance of beneficiaries' timely assertion of rights, deterring stale claims that could prejudice trustees due to significant, unexcused delay.
