In California, being a trustee is a major responsibility. People who are willing to accept it are often surprised at its complexity. To be sure, trust administration can be confusing and worrisome, especially when it comes to making investments to benefit the trust and its beneficiaries. Since there is significant freedom granted to a trustee, it is imperative to understand the law when it comes to handling financial considerations and making decisions that are in the interest of managing the trust in an effective and evenhanded way. A firm grasp of the law when it comes to trusts is critical.

Trusts and the Uniform Prudent Investor Act

The Uniform Prudent Investor Act sets out the requirements a trustee is expected to adhere to when making investments. The trust itself must be considered with its terms, how funds are distributed, the requirements in the trust and its basic circumstances. It is expected that the trustee will follow reasonable care, caution and skill. The entire trust must be considered when making investments. It is not to be done in an isolated way and the final goal is to serve the interests of the trust.

The trustee must consider various circumstances including the economic situation across the nation; how changes to the economy with issues such as inflation could impact the trust; tax concerns; what an individual investment might mean to the trust as a whole; what the return on the investment is expected to be; if liquidity is needed; if there are concerns about income and capital; if there is special value to beneficiaries with a certain asset; the facts of the investment in terms of trust management; and the determination of what will be invested in as long as it follows the rules of serving the trust.

Trusts can be difficult and trustees should be protected

The estate, income and beneficiaries take precedence with investments from a trust and the trustee should be aware of this. It is unfortunate that conflicts sometimes arise with trust administration and questions about investments and their wisdom are a common reason why. When the decision to take on the role of a successor trustee is made, it is useful to be fully cognizant of all it entails. With this or any other estate planning concern, having experienced advice can be essential.