Van Gundy v. Van Gundy

292 P.3d 1201 (2012)

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Nature of the Case

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Facts

In 2004, beneficiary created an irrevocable trust to be managed by D, his son, funding it with real estate and shares of stock in a family business. The trust agreement provided generally that (1) trust property would be 'held, managed, administered, and distributed by Trustee as provided in this Agreement'; (2) trustee could expend trust funds for beneficiary's health, maintenance, support, and comfort in whatever amounts trustee, in his sole discretion, deemed advisable; and (3) trust assets would not be subject to beneficiary's creditors' claims, and beneficiary could not 'encumber, hypothecate, or alienate' trust assets (a so-called 'spendthrift' provision). D had the power and discretion to invest and reinvest in common stocks, preferred stocks, investment trusts, bonds, securities and other property, real or personal, foreign or domestic, including any undivided interest in any one or more common trust funds maintained by any corporate trustee, whether or not such investments be of the character permissible for investments by fiduciaries under any applicable law, and without regard to the effect any such investment or reinvestment may have upon the diversity of the investments. D sold the initial assets for a total of over $1.3 million and then deposited nearly $1.05 million of trust funds into a brokerage account. D invested 100% of the trust's brokerage account funds in common stocks and mutual funds. D met with Eldon (P) and P's other son. D indicated he would diversify the trust holdings so that only 30% of trust assets would be invested in stocks. D continued to maintain 100% of trust assets in stocks and mutual funds until March 2009, when he received a notarized letter from P asking him to liquidate all trust assets. The value of the trust's holdings had dropped precipitously from late 2008 to early 2009. D complied with P's request and sold the bulk of the trust's brokerage account holdings that month. The trust realized a long-term loss of over $340,000. The remaining value of the trust's brokerage account was just over $100,000. P sued D for breach of fiduciary duty, breach of contract, breach of duty to provide a complete accounting, and to quiet title. The district court found that D had breached his contractual duty to beneficiary by purchasing stocks on margin, which, 'under the circumstances,' violated the prudent investor rule codified in subsection 15-1.1-102(a), C.R.S. 2012. It ruled that D's duty to act prudently was not eliminated by the terms of the trust, and further found that D's investments on margin were imprudent given the trust's purpose and beneficiary's age and financial situation. The court calculated damages of $376,959.24 due to D's investment on margin and failure to diversify. The final damages award was $399,819.24. D appealed.