Trustee’s Duty – What is the Prudent Investor Rule?
Understanding the Prudent Investor Rule in California Trust Administration
When managing a trust in California, trustees are legally required to follow specific duties. One of the most important of these is the duty to properly invest trust assets. This responsibility is governed by what’s known as the prudent investor rule. If you’re a beneficiary concerned about how your trustee is handling investments, it’s important to know your rights and understand how this rule works.
At The Grossman Law Firm, we understand that managing a trust comes with serious legal responsibilities. If you’re a beneficiary concerned about how trust assets are being managed, it’s important to understand how this rule works. And how The Grossman Law Firm can help protect your rights.
What Is the Prudent Investor Rule?
In 1995, California adopted its version of the Uniform Prudent Investor Act, formally establishing the prudent investor rule for all California trustees. Codified in Probate Code §§16045–16054, this rule has applied to every investment decision made after January 1, 1996.
The rule requires trustees to invest and manage trust assets with the same care, skill, and caution that a prudent investor would exercise under similar circumstances. Trustees must carefully consider the trust’s terms, its financial goals, and the needs of its beneficiaries when making investment decisions.
Legal Reference:
The prudent investor rule in California is established under the California Uniform Prudent Investor Act (Probate Code §§16045–16054), which took effect on January 1, 1996, and applies to all trust investment decisions made after that date.
Trustee Duties Under the Prudent Investor Rule
California’s prudent investor rule outlines several essential duties trustees must fulfill when managing trust investments:
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Invest with care, skill, and caution, appropriate for the trust’s size and financial objectives.
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Set reasonable risk and return objectives based on the specific circumstances of the trust.
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Diversify trust investments to minimize risk, unless it’s clearly prudent not to.
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Evaluate each investment in the context of the overall trust portfolio, rather than in isolation.
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Manage investment costs responsibly, avoiding unreasonable or unnecessary expenses.
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Consider tax consequences as part of an overall investment strategy.
Failing to meet these duties may result in a breach of trust claim, and the trustee could be personally liable for any resulting losses.
Why This Matters to Trust Beneficiaries
As a trust beneficiary, you have a right to expect that the trustee will manage and invest trust assets responsibly. Poor investment choices, failure to diversify, or ignoring tax implications can directly impact the value of your future distributions. If you believe a trustee is mismanaging trust investments, you have the right to seek legal guidance.
The Grossman Law Firm provides trusted legal services in California probate and trust administration to help beneficiaries hold trustees accountable and safeguard their interests.
Get Trusted Guidance from The Grossman Law Firm
To better understand how the prudent investor rule applies to trust administration, download our free resources to get more information on your case. This helpful guide breaks down the trust administration process and explains what beneficiaries need to know to protect their inheritance.
If you’re concerned that your trustee isn’t meeting their legal obligations, don’t wait. Contact The Grossman Law Firm today. Our experienced California probate and trust attorneys can review your situation, explain your rights, and help you protect what’s yours.
More on Trustee mismanagement and fiduciary duties
If you would still like some more information on trust litigation and removing a trustee, check out our complete Comprehensive Guide to California Trust Litigation, which is available on our website. Our law firm specializes in trust and probate law, and we are ready to assist you in navigating these complex issues. Contact us today for a consultation to ensure your rights are upheld and your trust is managed wisely. You can reach us at (888) 443-6590 or fill out our “Get Help Now” form below.