The law of Trusts requires every Trustee to invest Trust assets “as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.” 16047. The Trustee has a duty to consider:
- The general economic conditions
- Possible effect of inflation or deflation
- Expected tax consequences of investment decisions or strategies
- The role that each investment or course of action plays within the overall trust portfolio
- Expected total return from income and the appreciation of capital
- Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries
- Needs for liquidity, regularity of income, and preservation or appreciation of capital
- An asset’s special relationship or special value, if any, to the purposes of the trust
A Trustee must make a reasonable effort to ascertain facts relevant to the investment and management of trust assets. Finally, a Trustee has a duty to diversify the investments of the trust.
Wow, that’s a lot of things to consider and implement just to properly invest Trust assets. Is your Trustee doing all of that? Probably not. In part, because most Trustees have no idea they have these duties. But the Probate Code outlines these requirements clear as day. Anyone can open the code and take a look. Unfortunately, too many Trustees fail to do so.
Not only that, many Trustees try to meet their investment duties, but fail to have a written plan. When you have this long list of factors to consider when investing, why not have a written plan? In the financial world, a written investment plan is called an investor’s policy statement (or IPS). And written IPS is invaluable to laying out a proper investment plan, implementing that plan, and then (maybe most importantly) checking the plan every quarter to be sure the investment goals are being met.
Sound like a lot of work? It is a lot of work, but it is necessary if a Trustee wants to meet his or her fiduciary duty. If you Trustee is not taking all of these facts into consideration when investing, then you have a problem on your hands.