Trustee Duties: Is my Trustee required to invest and manage Trust assets?
Are you concerned about how your Trustee has managed your Trust assets? Do you believe your Trustee never had an investment plan or failed to manage the assets properly? Or is mismanaging your Trust by not investing correctly? Or is my Trustee required to invest and manage Trust assets?
Here are some things you should consider.
As a Trustee, there is an expected standard of care, and part of your Trustee’s duties are adhering to them. That means following your responsibilities to the Trust and the beneficiary, making sure the Trust is productive. So what happens when your Trustee is not adhering to the standard of care of investing and managing Trust assets effectively?
Here at The Grossman Law Firm, we have been helping our clients answer these questions for over twenty years. We have guided and educated them on what to know as a beneficiary. And what to expect from their Trustee and the duties they should follow.
In this article and video, you will understand
- Is it your Trustee’s duty to invest and manage Trust assets?
- How does California define the standard of care investing & managing the Trust’s assets?
- What must a Trustee consider in making investment and management decisions?
- What to Do if Your Trustee isn’t investing and managing Trust assets effectively?
Is it your Trustee’s duty to invest and manage Trust assets?
The short answer is yes!
If the Trust administered is in California, the Trustee must comply with the Uniform Prudent Investor Act when investing and managing Trust assets.
The Uniform Prudent Investor Act imposes a duty to invest and manage Trust assets on the Trustee. That means a Trustee is responsible for adhering to the Trust and doing whatever is in the beneficiary’s best interest.
The Uniform Prudent Investor Act states, “A trustee shall invest and manage Trust assets as a prudent investor would.”
So what does that mean? It means your Trustee must consider the Trust’s objectives, contracts, distribution requirements, and any other circumstances when investing and managing it.
To meet this standard, the Trustee must wield reasonable care, skill, and caution.
How does California define the standard of care investing & managing the Trust’s assets?
The Uniform Prudent Investor Act also says, “A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of Trust assets.”
And making a reasonable effort may sound obvious, but most trustees make little effort to do this. Almost every Trustee does not consider how to invest the assets over an extended period. Or they believe keeping everything as it was when they took over is acceptable. In a rising market, that strategy can work. In a falling market, it will fail.
What must a Trustee consider in making investment and management decisions?
So what must a Trustee consider when managing and investing the Trust assets?
A Trustee has a lot to consider. The first thing any Trustee must consider when managing and investing a Trust Asset is whether this aligns with the objective of the Trust?
The Uniform Prudent Investor Act also requires a Trustee to evaluate an individual asset as part of all the assets owned by the Trust. The Trustee cannot assess a single asset by itself. The Trustee must consider the asset concerning the overall investment strategy.
That means the Trustee must review the Trust and create an overall investment strategy. The investment strategy must evaluate risk and return in the context of the Trust. A Trust stating for outright distribution generally has no reason to take any risk with Trust assets. A Trust managed for years will need to take some risk to achieve meaningful returns.
Again, the Trustee doesn’t get to evaluate any particular Trust asset by itself. The Trustee must consider the assets in relation to all the assets owned by the Trust and keep if that specific asset serves a useful investment purpose or sell it with the proceeds reinvested if it is not. In other words, it doesn’t matter if mom, dad, or whoever created the Trust loved a specific stock or thought undeveloped land was a good investment. It is up to the Trustee to manage and invest Trust assets to make them profitable.
What to Do if Your Trustee isn’t investing and managing Trust assets effectively?
If your Trustee breaches their fiduciary duty by failing to invest and manage Trust assets properly, then evaluate what that failure has cost you. If your Trustee breached their fiduciary duty, not upholding the standard of care means the Trust most likely took a financial loss. In that case, it’s time to consider taking action.
For this duty, in particular, it is essential to emphasize that missed gains are also a reason to take action. Here is an example demonstrating the significance of investing and managing Trust assets effectively:
Suppose your Trustee must hold the assets for five years before distributing them to you, and the Trust is all cash.
Your Trustee deposits the cash in a five-year certificate of deposit that pays 3% annual interest. And let’s assume proper investment management would have suggested investing 60% of the assets in stock mutual funds, 35% in bond mutual funds, and holding 5% in cash. Suppose the portfolio would have generated an 8% yearly return.
The all-cash portfolio would have increased in value by 16% in five years. The invested portfolio would have increased in value by 47% in five years. That 31 percentage point difference in gain the Trustee missed is another reason to take action. They are mismanaging Trust Assets and not investing effectively.
So what do you do now?
If your Trustee has breached their duty by poorly investing and managing your Trust’s assets properly. In that case, you probably want to consider a petition to:
- Surcharge (i.e., get damages against) the Trustee;
- Seek prejudgment interest; and
- Seek post-judgment interest.
If that is the case, it is best to try and calculate how much the Trust has lost. And remove them as a Trustee.
Know the basics of proper Trust administration
Please review our articles on “Beneficiary’s Rights in California,” “A Trustee Should Pay Out of Pocket Due to Negligence,” and Removing a Trustee in California. If you would still like some more information on Trust Litigation and removing a trustee, check out our complete Overview of California Trust Litigation, available on our website. And if you have more questions about your rights as a beneficiary and what you should know moving forward, please fill out our Get Help Now form.
If this aligns with what’s happening to you, it’s best to reach out as soon as possible. The longer you take, the more damage your Trust could take. Please call us at (951) 683-3704, and we would be more than happy to see if we can assist you.