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By: Scott Grossman on July 8th, 2022

Trustee Duties: Should my Trustee be diversifying Trust assets?

Is your Trustee investing only in one thing, ‘betting’ on one investment to make money? Or is your Trust not being appropriately supported? And is your Trustee taking unnecessary risks investing your trust assets? And are you unaware of when your Trustee should be diversifying Trust assets? 

If you answered “yes” to any of these questions, your Trustee is not holding up their responsibility. And could be subject to removal. 

But what does diversifying Trust assets mean? How do you know if your Trustee is following their duties as manager of the Trust or simply taking advantage?  

Here at The Grossman Law Firm, we have been educating beneficiaries on their rights, guiding them through any question or litigation process they might need for over twenty years. From what it means for you as a Trust beneficiary to understanding the Trustee’s duties and removing a Trustee for not doing their job effectively. 

In this article and video, you will learn about the duties of a Trustee and their commitment to diversifying Trust assets: 

  • Why does a Trustee need to diversify assets?
  • What is the significance of diversifying your Trust assets? 
  • Are there times when a Trustee shouldn’t be diversifying Trust assets? 
  • What to do if your Trustee is not diversifying Trust Assets?

Why does a Trustee need to diversify assets?

California’s Trust Law incorporates The Uniform Prudent Investor Act. The Act asserts, “in making and implementing investment decisions, the trustee must diversify the investments of the Trust unless, under the circumstances, it is prudent not to do so.”

The Uniform Prudent Investor Act requires diversification because it tends to lower risk and increase returns for assets held for long periods.  

That means that it is required for a Trustee to invest and diversify assets to ensure that properly. 

What is the significance of diversifying your Trust assets? 

So what exactly does this mean? 

It means the Trustee must diversify trust assets. If your Trustee has not diversified your investments, it could be one of two things. 

They are not doing their duty as a Trustee. They require professional help when diversifying assets. If your Trustee has not hired an investment advisor, that should be a warning that they are not complying with their duty. 

Another reason a Trustee may not be diversifying Trust Assets is if specified in the Trust document. If the settlor of the Trusts states in the Trust not to diversify the assets or to hold them. 

Are there times when a Trustee should not be diversifying Trust assets? 

There are instances where it makes sense for the Trustee not to diversify assets: 

  1. The Trust provides for gifts of tangible personal property. The Trustee does not have a duty to sell the present and reinvest the cash to diversify the asset since it is a gift. 
  2. Trust property fulfills a practical purpose. For instance, if a beneficiary says they want the Trust property as a house because they intend to live there. Then it is appropriate for the Trustee to retain the place, so the trust property is distributed to that child.
  3. The settlor requires the Trust to invest in a specific way. The Trust requires the Trustee to invest in certain assets. That will limit the Trustee’s ability to diversify investments.
  4. The Trust calls for outright distribution, and there is a reasonable likelihood that the Trust will be able to distribute in a reasonably short period. When the Trust calls for an outright distribution, presumably, the Trustee is working toward getting the assets distributed in a short time. In those circumstances, the Trustee likely does not have to diversify the investments.  

What to do if your Trustee is not diversifying Trust Assets?

If your Trustee breaches their fiduciary duty by failing to diversify trust assets, then evaluate what that negligence has cost you. If the Trustee’s breach of duty resulted in a financial loss to you, then it’s time to consider taking action. You probably want to consider a petition to: 

  1. Surcharge (i.e., get damages against) the Trustee;
  2. Seek prejudgment interest; and
  3. Seek post-judgment interest.

Know the basics of proper trust administration

Please review our articles on the Beneficiary’s Rights in California 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 or want to talk to someone about your case, please call or 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 (888) 443-6590, and we would be more than happy to see if we can assist you.