Prudent Investment of Trust Assets
Trustees are accountable to both the current income beneficiaries and the remaindermen of a trust, and are often placed in the unenviable position of have to balance the interests of the two. A beneficiary may look forward to inheriting a business, their childhood home, a treasured family heirloom, or a large investment portfolio, and some level of conflict with the person holding the purse strings should be expected — or at least anticipated.
A trustee must be impartial
A significant challenge of prudent investing is in the selection or retention of investments that may provide a greater benefit to either the current income beneficiaries or to the remaindermen. For example, if an investment produces significant income but is otherwise losing value, the remaindermen may have a cause of action against the trustee for failure to exchange the property or withhold income for their benefit. The reverse is also true - if an investment produces little or no income but has appreciated considerably, the trustee will be faced with having to consider exchanging the property and/or allocating some of the sale proceeds to the income beneficiaries.
The relationship between trustees and beneficiaries is like that of step-parent and child. The trustee is typically selected by the parent, and the children have little or no recourse to extract themselves from an arrangement that does not suit them personally. Trustees must therefore be especially careful to maintain meticulous records and follow the guidelines and rules set forth by the trustor and The Uniform Prudent Investor Act (UPIA).
When a beneficiary sues a trustee, the challenge is usually made for one or more of the following reasons:
- The trustee did not properly safeguard the assets in the trust
- The trustee managed the trust in a way that disproportionately benefitted certain beneficiaries and not others, and/or
- The trustee used the trust funds to pay their own personal expenses, or to support someone else who is not a named beneficiary of the trust.
Even the most diligent and prudent trustees may face troubles that have nothing to do with their actions. Anticipated inheritances can bring out the worst in people, and trustees are often caught in the midst of squabbling relatives despite their best efforts. This role is not for the faint-hearted.
San Francisco estate planning attorneys
The attorneys and accountants at Moskowitz, LLP work with individual and corporate trustees, as well as private professional fiduciaries. If you are seeking legal counsel to draft your estate plan, or are a trustee seeking assistance with the administration of an estate, contact our San Francisco office for a consultation.