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By: Scott Grossman on February 6th, 2018

Trustee’s Duty – What is the Prudent Investor Rule?

Overview of Prudent Investor Rule

Under California trust law, trustees have an obligation to fulfill certain duties. Failing to submit to these duties can result in a claim for breach of trust against the trustee. One such duty imposed upon trustees is often a duty concerning the investment of trust assets, which means following the prudent investor rule. If you suspect that your trustee may be improperly investing the assets of the trust, you must contact an experienced San Diego trust lawyer for guidance.

In 1995, California adopted its own version of the Uniform Prudent Investor Act, imposing a prudent investor rule. This Act affects the duties of trustees of California trusts concerning the investment of trust assets. It applies to all investment decisions and actions taken after January 1, 1996, even for pre-existing trusts.

The Uniform Prudent Investor Act requires trustees to:

  • Invest and manage trust assets as a prudent investor would
  • Consider the purposes, terms, distribution requirements, and any other circumstances of the trust when making such investment decisions
  • Exercise reasonable care, skill, and caution when managing and investing trust assets

In addition, the Act imposes the following duties upon trustees, including:

  • There is a duty to select risk and return objectives reasonably suited to the particular trust
  • A duty to diversify investments
  • There is a duty to evaluate investments in the context of the portfolio as a whole
  • Investors have a duty to avoid unreasonable or inappropriate costs
  • Also, there is a duty to consider tax consequences

For more information about the prudent investor rule and how assets are invested as part of the trust administration process, view our free guide The Insider’s Guide to California Probate and Trust AdministrationPaying attention to the investing of trust assets is an important aspect of ensuring that your rights as a beneficiary are being protected. Contact an experienced San Diego probate lawyer to guide you through this process. To learn more, contact The Grossman Law Firm.