Social investing (SRI/ESG Investing) of assets subject to an irrevocable trust implicates the trustee’s duty of undivided loyalty unless the terms of the trust expressly direct/authorize the trustee to engage in such activity. It is no wonder that default fiduciary social investing has been practiced almost exclusively in the charitable space. To the extent that there are adverse economic consequences to the estate of a charitable trust that are attributable to a particular social-investing program, it is likely that the attorney general of the state in which the trust is principally being administered is either too busy frying other fish to get involved or actually supportive politically of the virtues that are being signaled by the social-investing trustee. In either case, the trustee is likely to have nothing to fear economically from his politically driven maladministration of the charity’s assets.

Social investing assets held in irrevocable private trusts for “widows and orphans” whose terms lack express direction to engage in such activity, however, is quite another matter. After all, the beneficiaries and their surrogates in the first instance would have the requisite standing to sue the trustee personally for any economic loss to the entrusted portfolio that is attributable to the social investing.

Maybe trustees of private irrevocable trusts should be authorized by statute to “take into account” when making investment decisions the socio-political predilections of their beneficiaries. Easier said than done. Delaware has such a default statute. It provides that “when considering the needs of the beneficiaries, the fiduciary may take into account…the beneficiaries’ personal values, including the beneficiaries’ desire to engage in sustainable investing strategies that align with the beneficiaries’ social, environmental, governance or other values or beliefs of the beneficiaries.” See Del. Code Ann. Tit. 12 §3302(a). Oregon and New Hampshire have statutes that are sort of similar.

But, as we note in §5.1 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in its entirety in the appendix immediately below, the typical private irrevocable trust will serve multiple categories of beneficiary at various times and under various circumstances. Beneficiaries come in all shapes and sizes. There are minors; there are the mentally incapacitated; there are multiple permissible beneficiaries under discretionary trusts the equitable property interests of whom are perforce contingent; there are yet-to-be-conceived persons ultimately entitled to take outright and free of trust remainders in corpus whose equitable property interests also are perforce contingent. One can go on and on. How on earth is a trustee charged with the duty of impartiality to discern each and every beneficiary’s particular “values or beliefs,” let alone forge a unanimous working socio-political consensus as to how the entrusted portfolio should be invested? And what if that consensus were to conflict with what the settlor would have wanted? And if the consensus portfolio were to turn out to be objectively imprudent and underperforming as a consequence, what then? If anyone is to be held personally liable for the economic loss to the trust estate, it is with the trustee that the buck would stop. It is a fundamental principle of trust jurisprudence that the trustee of an irrevocable trust, though a fiduciary, is a principal vested with legal title to the entrusted property. He is not the beneficiaries’ agent. And, of course, the beneficiaries, qua beneficiaries, owe no fiduciary duties to one another, let alone to the trustee.

The 2022 Edition of Loring and Rounds: A Trustee’s Handbook is available at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.