## Facts

- Edward A. Maxedon died in 1953, and his will created a testamentary trust intended to generate income for family members.
- The trust paid income to Maxedon’s brother and sister for their lifetimes.
- After the brother and sister died, their children received the trust income.
- The trust terminated 20 years after the death of the last surviving sibling, at which time the trustee was to sell remaining trust property and distribute the proceeds to the named remainder beneficiaries (the plaintiffs).
- The trust estate consisted primarily of Kansas real property—mostly farmland and grassland—valued at about $112,150 at inception, plus a small amount of other assets.
- The Peoples State Bank of Pratt served as the trustee.
- During administration, the trustee collected income from the properties, including rents, oil and gas royalties, and crop income.
- The trustee sold no income-producing land during the trust term; only vacant city lots were sold in 1970 by court order.
- From approximately 1982 to 1992, the trustee carried internal land values of about $658,000.
- Over the trust’s life, it produced an average income of about 4.85%.
- When the trust terminated, the trustee sold the remaining real property for about $479,000.
- The remainder beneficiaries sued the trustee, alleging breach of fiduciary duty for failing to sell earlier when values were higher, failing to diversify the trust assets, and failing to meet a higher standard of care applicable to a professional corporate trustee.

## Issues

1. Did the trustee have authority under the will to sell nonwasting real estate before trust termination?
2. Under Kansas’s prudent-man standard, did the trustee have a duty to diversify the trust’s largely land-based holdings, and was that duty breached by retaining the farmland and grassland?
3. Because the trustee was a professional corporate trustee, did a higher standard of care apply, and did the beneficiaries prove that the trustee fell below it?
4. Did the beneficiaries prove that the trustee’s conduct caused actual, compensable damages (as opposed to market-driven changes in value)?

## Decision

- The Kansas Court of Appeals affirmed the judgment for the trustee.
- The court agreed that the trustee had power to sell nonwasting trust real estate because the will did not expressly bar sale, but the beneficiaries did not prove that the trustee’s decision to retain the income-producing land violated its fiduciary duties in light of the trust’s income purpose and circumstances.
- The court rejected the beneficiaries’ attempt to impose liability based solely on the trust’s lack of diversification, concluding that the record did not show that retention of the productive farm and grassland was imprudent under the governing prudent-man standard.
- Although a professional trustee may be held to a standard reflecting its claimed skills, the beneficiaries did not present proof (including supporting testimony on professional standards) showing that the trustee’s conduct fell below the applicable level of care.
- The beneficiaries also failed to prove damages caused by any breach; the gap between internal values and the eventual sale price did not, by itself, establish a recoverable loss attributable to the trustee’s decisions.

## Legal Principles

- A court construes a trust primarily from the will’s language, and the settlor’s intent, as shown by the instrument, guides administration.
- Unless a trust instrument restricts it, a trustee may have power to sell nonwasting real estate held in trust, but the propriety of selling or retaining an asset is judged in context, including the trust’s purposes.
- Under Kansas’s prudent-man approach, the trustee must act prudently with attention to the trust’s objectives and circumstances; diversification is not an automatic requirement in every trust and every setting.
- A professional corporate trustee may be held to a standard consistent with the abilities it represents, and proof of breach of that professional standard commonly requires expert testimony when the issues are outside ordinary experience.
- A beneficiary seeking surcharge must prove causation and actual damages; a later decline in value, without competent proof tying the loss to imprudent conduct, is not enough.

## Conclusion

The Court of Appeals upheld the trustee bank’s administration of a long-term, income-focused land trust, holding that although the trustee had power to sell nonwasting real estate, the beneficiaries did not prove that retaining productive farmland was imprudent, did not prove a diversification breach or a failure to meet a professional trustee standard, and did not prove damages caused by the trustee rather than by changes in market value.


In re Estate of Maxedon, 946 P.2d 104, 24 Kan. App. 2d 427 (1997)