## Facts

- Dr. Charles H. Mayo created two inter vivos trusts in 1917 and 1919 with long durations tied to the lives of specified beneficiaries and permissible perpetuities limits.
- Each trust granted trustees broad administrative discretion but expressly limited investments to “real estate mortgages, municipal bonds or any other form of income bearing property (but not real estate nor corporate stock).”
- At the hearing, the first trust corpus was approximately $1,000,000, invested mostly in municipal bonds and including shares of Kahler Corporation stock originally contributed by the settlor; the second trust corpus was approximately $186,000, invested mostly in municipal bonds.
- After Mayo’s death in 1939, evidence showed sustained inflation and that continued primary reliance on fixed-income securities would substantially erode the real value of the trust principal over time.
- A beneficiary petitioned for (1) authorization for trustees to deviate from the no-stock restriction to invest part of the trust assets in corporate stock, or (2) a construction of “other forms of income bearing property” that would include corporate stock.
- The district court denied the petitions; beneficiaries appealed.

## Issues

1. Whether a court may authorize deviation from express trust investment restrictions, including a prohibition on corporate stock, when unforeseeable economic conditions would substantially impair or defeat the trust’s purposes.
2. Whether the phrase “other forms of income bearing property (but not real estate nor corporate stock)” can be construed to permit investment in corporate stock despite the explicit exclusion.

## Decision

- The Minnesota Supreme Court reversed the district court.
- The court held that the evidence of continuing, unforeseeable inflation constituted exceptional circumstances justifying deviation from the restrictive investment provisions.
- The court directed that trustees be authorized to invest a portion of trust assets in corporate stocks to prevent frustration of the settlor’s dominant intention to preserve the trust corpus.
- The court did not adopt a construction that treated the clause as already permitting corporate stock; relief was granted through judicial authorization to deviate.

## Legal Principles

- Courts must effectuate the settlor’s dominant intention as expressed in the trust instrument and generally may not disregard clear terms.
- Investment restrictions are ordinarily enforced strictly to honor the settlor’s expressed intent.
- A court may permit deviation from restricted investment terms when compliance would defeat or substantially impair the trust’s purposes.
- Deviation is limited to exceptional circumstances or emergencies, particularly when the circumstances prompting deviation were not foreseeable to the settlor.

## Conclusion

The court authorized equitable deviation from express no-stock investment restrictions because sustained, unforeseeable inflation threatened to erode the trust corpus and thereby frustrate the settlor’s primary purpose of preserving principal for long-term beneficiaries.


In re Trusteeship of Mayo, 259 Minn. 91, 105 N.W.2d 900 (Minn. 1960)