CALIFORNIA TRUSTEE INVESTMENT AND MANAGEMENT RESPONSIBILITIES (Part 2 of 2)

This is part two of two discussions about California trustee investment and management responsibilities. This is a complicated topic. Each situation needs to be evaluated on its own. Most likely no two situations are the same. You should consult legal counsel.

Unless the trust states otherwise, the trustee should invest the trust property, preserve it, and make it productive. You can refer to Probate Code §§16000, 16006-16007 and 16046(b).

Unless the trust states otherwise, the trustee should 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.

If a trust has two or more beneficiaries, the trustee should deal impartially with them and should act impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries. You can refer to Probate Code §16003.

Sometimes beneficiaries may have conflicting interests. When two or more income beneficiaries have different personal income tax brackets, generally the trustee should 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 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, intent and purposes of the trust, the trustee should follow the Prudent Investor Rule and make the trust property as productive as possible under the circumstances. You can refer to Probate Code §§16007 and 16046. Compliance with the Prudent Investor Rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight. You can refer to Probate Code §16051.

A trustee has the authority to make investment decisions as provided by the intent and wording 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, 16046 and 16047.

Whether the trustee should use the services of a professional investment advisor is another issue to consider. It depends on the facts and circumstances. This topic also gets into prudent delegation of duties and how hiring an investment advisor could help protect the trustee from investment decision liability. This is a topic covered in other discussions. You can refer to Probate Code §16012.

Part one contains the remaining discussion.

Dave Tate, Esq., http://tatetalk.com

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