Jan 1, 2007 12:00 PM, By Gail E. Cohen, executive vice president and general trust counsel, Fiduciary Trust Company Intern

By: By Gail E. Cohen, executive vice president and general trust counsel, Fiduciary Trust Company Intern

In 2006, courts spoke to two important issues in trust administration. The Dumont case was overturned,¹ providing a brief respite for trustees that own large stock concentrations. And Rudkin was affirmed,² seeming to confirm that, at least in the Second Circuit, investment management fees incurred by trusts cannot be fully deducted for income tax purposes. These cases involve two of the most difficult issues in trust administration: investing a trust with an undiversified asset concentration and deducting investment management fees. Even with these decisions, trustees do not have complete certainty about these key responsibilities, diversification and tax planning. And the two responsibilities will be subject to even more uncertainty as we head into a new era of a Democratic majority in Congress.

Dumont followed a line of cases that began in 1995 with Janes.³ These cases had several facts in common. First, the trustee held a concentration of publicly traded stock that had a low cost for income tax purposes. Second, the remaindermen in these cases objected to the fact that the trustee failed to diversify that concentration. Third, the trustee's actions occurred mostly before 1995, the date New York's prudent investor rule became law. And finally, in each of these cases, the lower court held the trustee liable for damages for this conduct.

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