Helping Trustees Avoid Liability — The Duty of Prudent Administration

Faegre Drinker Biddle & Reath LLP
Contact

Faegre Baker Daniels

Prudent administration of a trust requires the trustee to exercise reasonable care. Most significantly, the trustee must follow the Prudent Investor Act. It generally requires the trustee to evaluate the merits of any investment in light of the portfolio as a whole and prohibits high concentrations in a single investment. To comply with the duty of prudent administration, the trustee should:

  • Check the trust instrument for any specific directions regarding trust assets and investment objectives.
  • Analyze the beneficiaries’ respective rights and needs to design the investment objectives.
  • Determine what asset mix will best achieve the investment objectives.
  • Make sure the trust assets are properly diversified, considering tax consequences of any sale.
  • If the trust has a concentration of 10% or more in an investment, determine:
    • If the trust directs or permits the concentration.
    • If diversification is required despite the trust language.
    • The tax effects of diversifying versus the risk of retaining the concentration.
    • If the family has an emotional connection to the investment or asset.
  • Keep beneficiaries informed of diversification plans and request court approval as necessary to avoid potential disputes.
  • Set up procedures for investment monitoring and regular reviews.
  • If unsure about an investment or other administrative task, seek legal advice.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Faegre Drinker Biddle & Reath LLP | Attorney Advertising

Written by:

Faegre Drinker Biddle & Reath LLP
Contact
more
less

Faegre Drinker Biddle & Reath LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.