In my previous posts regarding trust administration, I wrote about a trustee’s fiduciary duties and the legal requirements a trustee must follow for keeping beneficiaries informed about the trust’s administration. In this post, I will discuss a trustee’s investment duties.
At its most basic, a trustee’s responsibilities are to manage the trust resources and to make distributions to the trust’s beneficiaries. Most trusts include specific standards or at least some directions to the trustee for making distributions of trust assets to the beneficiaries. A trust that is established for payment of education expenses of the beneficiaries, for example, may direct the trustee to pay the tuition, fees, books, and living expenses of the beneficiaries so long a the beneficiary is enrolled as a student in good standing.
Trustees must also follow requirements under the law, as well as any specific language in the trust, regarding their management of the trust’s assets. The legal standard to which a Washington trustee is held for investment decisions is that of a “prudent investor.” A trustee may invest trust assets consistent with Washington law governing investment of trust funds, including RCW 11.100.020 which provides that “a trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.”
The trust itself may also include instructions or provisions that address the trustee’s investment responsibilities. These provisions may be included in order to further the objective of the grantor (the person who established the trust). For example, if a trust is established in order to hold title to a family vacation cabin, the trust may direct that the trustee keep the property in the trust, even if the property is not a “prudent” investment. The grantor may also include language in the trust instructing the trustee to invest (or not to invest) in a certain class of assets, based on the grantor’s values.
In addition, a trustee should be aware of Washington’s Principal and Income Act of 2002, RCW 11.104A , which directs how a trustee must allocate the trust’s distributions and assets between the trust’s principal (existing trust assets) and income (money earned by the trust assets). Some trusts may instruct a trustee to make distributions of trust principal with a different standard than trust income. This statute provides detailed guidance to trustees as to how such allocations between principal and income are to be made.
If a trustee has any questions as to whether a particular investment complies with these statutory provisions, or is consistent with the terms of the trust, we recommend that a trustee consult with an attorney prior to committing trust resources to such an investment.
Photo Credit: Pictures of Money on Flickr
This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.