S creates a testamentary spendthrift trust for the support of her children and the education of her grandchildren, naming T as the trustee. If XYZ stock becomes a poor investment due to unforeseen change, which is T's best option to divest?

• A. T should hold the stock because the trust prohibits sale.
• B. T should terminate the trust.
• C. T should seek court modification to permit sale due to unforeseen change.
• D. T should invest more in XYZ stock.

Answer: (C)

The key idea is that a trustee must manage trust assets under a prudent standard and, when unforeseen changes affect the investment’s viability, has a duty to adapt in order to preserve the trust’s purpose for the beneficiaries. In a testamentary spendthrift trust, the trustee is responsible for supporting the children and educating the grandchildren, so continuing with a poor investment would undermine those goals. If XYZ stock has become a poor investment due to unforeseen market changes, the appropriate step is to seek a court modification that permits sale of the asset and reinvestment in more prudent, diversified holdings. This option aligns with the trustee’s duty to preserve and efficiently administer the trust while honoring the settlor’s intent and the spendthrift protections. Holding the stock would ignore prudent administration, terminating the trust would unnecessarily end the protection and purpose, and putting more money into the same poor asset would likely worsen the outcome.