Understanding the Prudent Investor Rule
Trustees are responsible for investing and managing the assets of a trust, and they have the duty to act prudently when making investments. This includes considering the purpose and terms of the trust, the distribution requirements, and other relevant information. Under the ITC, a trustee may also consider the environmental and social impact of investment decisions, as well as the governance policies of entities where assets are invested. Before making an investment, a trustee should consider:
- The economic conditions that may affect the investment
- The possibility of inflation or deflation
- The anticipated tax costs and consequences of the investment
- How a specific investment can affect the overall portfolio
- The anticipated total return
- The duty to sustain only feasible and suitable costs
- The need for liquidity, regular income, and preservation of capital
The ITC does allow a trustee to examine whether a trust asset has a relationship to the purpose of the trust, or to one or more of the beneficiaries, in order to help determine what to do with the asset. For example, if a trustee believes that real estate property held in a trust is of no value to the trust itself or the beneficiaries, he or she may suggest that the property be sold. A trustee is not eligible to become a beneficiary for the purpose of protecting his or her good faith in connection to the trust.
Contact a Mount Prospect Trust Attorney
The ITC has put a wide variety of rule changes in place. For trustees who manage the assets of a trust, it is imperative to understand how the prudent investor rule affects the decisions they make. To protect against liability or any other legal issues, all trust makers and trustees should seek legal counsel to determine how the ITC will affect them. At Drost, Gilbert, Andrew & Apicella, LLC, our knowledgeable South Barrington estate planning lawyers can help you understand your rights and responsibilities and address any concerns you may have as a trust maker, trustee, or beneficiary. To schedule a free consultation, contact our office today at 847-934-6000.
About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.