Lessons for Trustees and Beneficiaries Part III – Investing Trust Assets

A Trustee has a duty to invest and manage trust assets.  How to go about investing Trust assets depends upon the goals of the Trust, Ohio law, and the beneficiaries’ needs.  The goals of the Trust can be determined by simply looking at the Trust language.  Ohio law dictates that a Trustee consider a number of factors when making investment decisions:  The general economic conditions, the possible effect of inflation or deflation, the expected tax consequences of investment decisions or strategies, the role each investment plays within the overall trust portfolio, the expected total return from income and appreciation, other resources of the beneficiaries, need for liquidity/regularity of income/preservation of capital, an assets special relationship or special value to the purposes of the trust or a beneficiary.  To find out the beneficiaries needs, it is best to have regular contact with the beneficiaries.  Do the beneficiaries have upcoming college costs, home ownership, medical expenses, long-term care costs, etc.    

A Trustee must diversify trust assets unless he determines that because of special circumstances, the purposes of the trust are better served without diversifying.  Practically speaking, unless a Trustee has clear authority within the Trust instrument not to diversify, a Trustee should seek out the informed consent of beneficiaries.

A Trustee may want to consider hiring a registered financial advisor to invest and manage the Trust assets.  However, when delegating this duty, the Trustee should be careful to select a qualified candidate,  ensure that he establishes the scope and terms of the delegation and periodically reviews the Agent’s performance to make sure the Agent is complying with the scope and terms of the delegation.  So what does that mean practically? The Trustee should make sure that he has a written statement outlining for the Advisor what the purpose of the Trust is and what the expectations are- Is the goal to create income or build up principle? How old are the beneficiaries? When are distributions to be made? When does the Trustee expect statements? Will the Trustee pre-approve any transaction?, Etc.  Then, the Trustee should be reviewing all the statements received by the Advisor and have periodic meetings/telephone conversations.  The frequency of the meetings/telephone conversations will depend on the aggressiveness of the investments.  A Trustee also has a duty to only incur costs that are appropriate and reasonable.  So when delegating to a financial advisor, the Trustee should ensure that it is in keeping with the industry standard.

Whether you are a Trustee or Beneficiary, lack of knowledge of your responsibilities or rights can be costly.  Consider consulting a trust administration attorney for guidance.

To read Part I of this series on What is a Trust and Who Has to Know About it see http://www.perlalaw.com/blog/lessons-for-trustees-and-beneficiaries-part-i-what-is-a-trust-and-who-has-to-know-about-it/

To read Part II of this series on Safeguarding Trust Property see http://www.perlalaw.com/blog/lessons-for-trustees-and-beneficiaries-part-ii-safeguarding-trust-property/