Managing Trust Assets
Unless your trust provides otherwise, the Successor Trustee has the duty to invest the trust property in order to make it productive and to preserve it.
There may be instances, however, when it is not necessary for the trust to make income from certain pieces of property, such as those in use by the beneficiary as a residence or other tangible personal property. Absent a special circumstance such as this, however, it would be your duty to make each of the trust assets productive. You should keep in mind that certain assets may be necessary for expenses within a short period of time and should not be tied up in long-term investments or in investments which cannot be liquidated fairly quickly.
A. Delegating Investment Duties
Under current law in California, for instance, Trustees are generally entitled to delegate their investment duties to a third party. If you do not wish to make the investment decisions yourself, or don't wish to deal with the day to day issues of investment decisions, this may be option for you.
You may hear the term "Prudent Investor Rule" from time to time. This rule is set forth in California at Probate Code sec. 16045. The Prudent Investor Rule requires you to "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 [Successor] Trustee shall exercise reasonable care, skill and caution."
The Trust portfolio as a whole is considered primary in importance and the decision regarding individual assets is considered secondary. . . .
When you consider your investment opportunities you should also keep in mind that each beneficiary has a competing interest. One beneficiary may need as much income as possible if the trust is that beneficiary's sole means of support; however, the remainder beneficiaries are also entitled to some growth of the trust assets by way of increased value rather than income.
Although balancing these needs is difficult, it is your duty as the trustee to make these decisions in the best way that you can. It would be a good idea to keep notes as to why you make specific decisions. The beneficiary's response to a letter from you asking for the beneficiary's income and financial information may be useful to you in substantiating your decisions on how to invest the assets and how much income to pay out at a particular time.
It may also be a good idea to consult the beneficiaries before terminating the trust to find out what sort of assets the beneficiaries would wish to have when the trust is distributed to them.
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