Southern California Probate and the Prudent Investor Rule
What is the Prudent Investor Rule?
California trust investment is a daunting task for the majority of non-professional trustees. It’s easy to see why: most trust litigation results from assets that were incorrectly invested, leaving the trustee liable. Here is an explanation of the Prudent Investor Rule and what a trustee is responsible for.
Trust investment is where trustees tend to make the most mistakes.
Ironically, mistakes in trust investment, as well as the resulting liability, are extremely easy to avoid.
Every California trustee is to comply with the Prudent Investor Rule. According to the rule, a trustee must make investment and money management decisions as part of an overall strategy intended to build assets for the beneficiaries of the trust.
The Prudent Investment Rule is process-driven. This means that a trustee is judged on his or her investment strategy, not the actual outcome of the real investments.
The trustee has the responsibility to demonstrate the same skills that a professional investor would. This means taking the terms, distribution requirements, and other circumstances of the trust into consideration. They are expected to build an investment strategy at a level of risk and a return that is appropriately suited to the trust.
Informational video: Prudent Investor Rule – The Grossman Law Firm APC
Factors taken into consideration when following the Prudent Investment Rule include:
- General economic environment
- Potential consequences of inflation or deflation
- Tax-related considerations of investment strategies
- The role of each investment in the overall trust portfolio
- Expected total return from income
- Appreciation of capital
- Other resources beneficiaries have available to them as communicated to the trustee
- Provision of necessary income, payment obligations, or the preservation of capital
- Assets of a nature that have a heightened priority to one or more of the beneficiaries of the trust itself
It is not necessary to have utilized all these factors in making an investment decision. Yet, at least one of them should be an apparent priority in your decision making process.
The trustee is responsible for the best interests of the beneficiaries. Therefore, the trustee held to a professional-level standard of judgment for investment decisions. Because of this, most non-professional trustees make the decision to protect themselves with the services of a professional financial adviser. This is especially true in the case of long-term administrations. If you are working with an attorney, then they will likely be able to refer you to an adviser who understands your needs.
Are you a California trustee with questions about your liability in trust investment? The Southern California probate attorneys at The Grossman Law Firm offer San Diego trust administration, will contests, trust litigation, and probate services. For a confidential and no-charge 30-minute consultation with one of our attorneys, contact us today.