Trustee Investment and Management Duties (California)
Trustee investment and management duties can be difficult to ascertain and decide. As you can see from the below discussion, a trustee’s investment and management duties are important and absolute but how a trustee goes about satisfying those duties depends on many different factors and variables.
A trustee has the duty to invest trust property for the benefit of the beneficiaries, subject to restrictions or limitations stated in the trust. The trustee’s investment powers are provided by the terms of the trust. If not derived from the trust, the investment powers are also derived by statute, case law and the factual circumstances. You can refer to Probate Code §§16200(a) and (b) and 16047. Generally, the trustee has the duty to make trust assets economically productive.
The trustee is subject to the Uniform Prudent Investor Act, unless the trust provides for a greater or lesser standard of care. You can refer to Probate Code §§16045 through 16054. The trustee should carefully read the trust terms and the Uniform Prudent Investor Act.
A trustee must invest and manage the trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.
The trustee must exercise reasonable care, skill, and caution.
A trustee’s investment and management decisions relating to individual assets and courses of action are evaluated in the context of the trust’s portfolio as a whole and as a part of an overall investment strategy reasonably suited to the trust’s risk and return objectives.
Probate Code §16047 requires the trustee to consider such matters as economic conditions, inflation or deflation, tax consequences, the role of each investment or action within the overall trust portfolio, the expected rate of return from income and appreciation, other financial resources of the beneficiaries known to the trustee, needs for liquidity, regularity of income, preservation and appreciation of principal, and asset special value or relationship to the purpose of the trust or the beneficiaries.
The trustee has a duty to locate and take possession of the trust assets, and develop an investment strategy suited to the purpose of the trust. You can refer to Probate Code §§16006 and 16049.
Unless the trust states otherwise, the trustee has a duty to invest trust property, preserve it, and make it productive. You can refer to Probate Code §§1600, 16006-16007 and 16046(b).
Unless the trust states otherwise, the trustee has a duty to diversify the trust investments unless, under the circumstances, it is prudent not to do so. You can refer to Probate Code §§16046(b) and 16048.
The trustee must consider the interests and needs of all beneficiaries, income and remainder, when making investment decisions. You can refer to Probate Code §16003.
The beneficiaries may have conflicting interests. When two or more income beneficiaries have different personal income tax brackets, generally the trustee may strike a balance between them when determining how much to invest in certain assets. However, the trustee might be allowed to prefer one class of beneficiaries over another depending on the intent of the trust or if the trust terms direct—this can be a difficult area and cause litigation concerns. You can refer to Probate Code §16000.
Subject to the terms and intent of the trust, the trustee has a duty to make the trust property as productive as reasonably possible under the circumstances. You can refer to Probate Code §§16007 and 16046(b). Under the Uniform Prudent Investor Act, an asset may be productive either by producing income or by appreciating in value.
A trustee has the authority to make investment decisions as provided by the intent of the trust, as provided by statute, and as required by the trustee’s legal standards of care, the interests of the beneficiaries, and the Prudent Investor Rule. You can refer to Probate Code §§16200, 16202, 16220-16244, 16040 and 16047.