CREED V. MCALEER
175 N.E. 761 (1931)

PROCEDURAL POSTURE: Appellant estate sought review of the decree of the probate Court for the county of Suffolk (Massachusetts), which denied a request for an allowance of a substituted second account of the surviving trustee under the decedent's trust. Respondents, an individual and others, asserted that the dividends, from mining stocks of the trust, belonged to capital. Parties interested in the remainder appealed.



FACTS: The remainder beneficiaries did not agree to the distribution of stock in kind on termination of a trust. The court ordered the stock to be sold within a reasonable time. The beneficiaries sued the trustee to hold him liable for the difference in the value of the stocks between the peak price following the life beneficiary's death and the price at which they were sold. The lower court denied mat request. This appeal resulted.

ISSUE: Is a trustee liable only for a failure to act when such failure was an abuse of sound discretion and good judgment of a prudent man dealing with his own permanent investments? Can a trustee offset negligence losses in one investment with gains from other investments in the trust corpus?

RULE OF LAW: A trustee is liable only for a failure to act when such failure was an abuse of sound discretion and good judgment of a prudent man dealing with his own permanent investments. A trustee cannot offset negligence losses in one investment with gains from other investments in the trust corpus.

HOLDING:in the matter of the estate of C. James Connelly, deceased. From a decree allowing the second substituted account of James F. Creed, sole surviving trustee under the will of C. James Connelly, deceased, Katherine G. McAleer and others appeal.


ANALYSIS: The decedent's trust provided for the income of the trust to be for the benefit of the decedent's wife, while she lived. The remainder was to be paid over upon the wife's death. Some of the remaindermen sought a distribution from the stocks, although not all of the remaindermen agreed to the distribution of the securities in kind. The trustee did not sell the stocks right away, and some of the remaindermen sought to charge the trustee for the difference between the price of the stocks at their peak and the price at which they were ultimately sold. The court found that the trustee acted in good faith and that he was not chargeable with failure to sell the stocks at the peak price because he had not acted imprudently. In addition, the allowance of compensation to the trustee was properly paid out of capital, not out of the income from the trust. The court modified the decree to accord with its findings. The court did not agree with the probate court's decision regarding the treatment of the dividend, however. The dividend should have been treated as a part of the estate of the wife, as a life beneficiary.