December 10, 2012
Recent Case Involving Diversification
The concentration of investments must take into account the entire portfolio. The beneficiaries of a testamentary trust objected to the trustee’s accounting alleging lack of diversification. Shares in a closely held family business comprised 60% of the value of the trust portfolio and of the remaining 40%, three-quarters of the value was made up of the stock of four different companies. The Surrogate dismissed the objections, holding that the Uniform Prudent Investor Act requires that judgments about the trustee’s performance be based on the entire portfolio and therefore a decision on whether or not the positions in the four publicly traded stocks result in a lack of diversification cannot be made without taking into account the value of the non-publically traded stock. In re HSBC Bank USA, 952 N.Y.S.2d 740 (Sur. Ct. 2012).
Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.
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