Question: As Trustee, what are my duties to invest trust assets?
Answer: The Trustee must act in the best interests of the trust and the beneficiaries of the trust, including the duty to protect and preserve the trust assets and make the assets ‘productive’. Making assets productive may be more of a term of art than a legal definition.
The Trustee is charged with the task of managing trust assets and making the investment decisions for the trust. The general rule trustees must follow is generally known as the ‘prudent investor rule’ requiring a trustee to exercise reasonable care, skill and caution.
More specifically, the prudent investor rule requires the trustee to consider broad investment factors, such as current economic conditions, effects of inflation or deflation, tax consequences, the nature of closely-held business interests, alternative investments, expected returns on income and capital, other resources of the trust or trust beneficiaries, the need for liquidity versus preservation of capital, the production of income, the special value or relationship of a particular asset to the trust or the beneficiaries, diversification of investments, and more.
Boiled down, what the prudent investor rule means is that it isn’t about any single investment; rather, the trustee needs to manage the trust portfolio as a whole taking into account all the considerations listed above. So if one investment goes bad, the Trustee isn’t generally liable for breach in the context of a larger investment plan.
Comment: It is important to note that poor performance of investments alone will not subject the trustee to a claim for breaching his duties to prudently invest. So long as the underlying investment decisions are reasonably made, the trustee is not likely to be held liable for a claim against him. It is important to follow general principles of prudent investing. I advise trustees to keep beneficiaries informed when possible and exercise care in selecting investment advisors and other professionals.
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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