If the client’s wealth is the product of a family-run business or a single concentrated stock investment, he (and the family) may be reluctant to divest themselves of this asset upon the client’s death. This is an understandable sentiment; unfortunately it runs head on into the general fiduciary duty to “diversify.” The duty to diversify may be waived by the client if he explicitly expresses this intention in the testamentary instrument. The following two sample clauses address this issue:

Original Assets. Except as otherwise provided to the contrary, to retain the original assets it receives for as long as it deems best, and to dispose of those assets when it deems advisable, including any interests in XYZ FAMILY BUSINESS or other affiliated or successor entities, as more specifically set out in Article ___, even though such assets, because of their character or lack of diversification, would otherwise be considered improper investments for the Trustee.

Retention of Stock. I authorize the Trustee to retain the assets that it receives, including shares of stock or other interests in XYZ FAMILY BUSINESS, or its successors in interest, or any other company or entity carrying on or directly or indirectly controlling the whole or any part of its present business (collectively referred to as “the company”), for as long as the Trustee deems best, and to dispose of those assets when it deems advisable. I intentionally excuse the Trustee from the duty to diversify investments by the sale or other disposition of interests in the company that ordinarily would apply under the prudent investor rule, and I direct that the Trustee not be held liable for any loss or risk (even so-called “uncompensated risk”) incurred as a result of this failure to diversify. Nothing in this paragraph will be interpreted in any manner to limit the Trustee’s authority to sell some or all of the interests in the company.

Planners should note that concentrated-stock positions can lead to huge litigation exposure for fiduciaries – especially deep-pocket corporate trustees. In In re Chase Manhattan Bank, 809 N.Y.S.2d 360 (N.Y.A.D. 4 Dept. Feb 03, 2006), a recent high profile case out of New York, the existence of the type of waiver-of-duty-to-diversify clause provided above enabled Chase Manhattan Bank to completely reverse on appeal a $24+ million judgment entered against it at trial. The New York appellate court focused on the following provisions:

The trust was funded with a concentration of Kodak stock. Decedent’s will provided that “[i]t is my desire and hope that said stock will be held by my said Executors and by my said Trustee to be distributed to the ultimate beneficiaries under this Will, and neither my Executors nor my said Trustee shall dispose of such stock for the purpose of diversification of investment and neither they [n]or it shall be held liable for any diminution in the value of such stock.” Decedent’s will further provided that “[t]he foregoing .  .  .  shall not prevent my said Executors or my said Trustee from disposing of all or part of the stock of [Kodak] in case there shall be some compelling reason other than diversification of investment for doing so.”