In re Estate of Maxedon

Upon Edward A. Maxedon’s death in 1953, his will established a testamentary trust to provide income. Under the trust, Edward’s brother and sister would receive the trust income for their lifetimes. Upon the deaths of Edward’s brother and sister, their children would receive trust income. The trust terminated 20 years after the death of Edward’s last surviving sibling, upon which the trustee was instructed to sell the remaining property and distribute the proceeds to the named beneficiaries (plaintiffs). The trust estate was primarily real property, mostly farmland and grassland in Kansas valued at $112,150. The Peoples State Bank of Pratt (Peoples) (defendant) was the trustee. Peoples collected rents, oil and gas royalties, and crop income. Peoples did not sell any of the land, which all generated income, other than vacant city lots that were sold by court order in 1970. From 1982 to 1992, Peoples valued the land in the trust at $658,000. The trust produced an average income of 4.85 percent over the trust’s life. When the trust terminated, the land was sold for $479,000. The beneficiaries filed suit against Peoples based on the difference between the land’s value and its sale price. The beneficiaries argued that Peoples had the power to sell the land earlier when it had a higher value, Peoples had the duty to diversify the trust assets, and Peoples was subject to a higher standard of care because it was a professional trustee with greater skill. The trial court held that although Peoples did have the power to sell nonwasting trust assets, because the trust estate primarily consisted of the land, Edward’s intention was for his siblings and nieces and nephews to have the income from the land, not for the trustee to sell the land. The trial court also held that Peoples had no duty to diversify the trust assets, and although Peoples was subject to the standard of care for professional trustees, the beneficiaries did not present evidence that Peoples breached that standard. The beneficiaries appealed.