As an estate planning attorney in San Diego, I frequently encounter questions about the level of control grantors can exert over trustees, particularly regarding investment decisions; the short answer is, yes, you absolutely can, and often should, consider restricting a trustee’s ability to outsource investment decisions, but it requires careful drafting and understanding of fiduciary duties.
What are the Fiduciary Duties of a Trustee?
Trustees have a fundamental duty to act prudently and solely in the best interests of the beneficiaries. This isn’t merely a moral obligation; it’s a legal one. The Uniform Prudent Investor Act (UPIA), adopted in most states, including California, sets the standard. Under UPIA, a trustee must act with the care, skill, prudence, and diligence that a prudent investor would use. However, “prudent” doesn’t automatically equate to “must handle all investments personally.” A trustee can delegate investment functions to qualified professionals, but this delegation doesn’t absolve them of all responsibility; they must exercise reasonable care in selecting, instructing, and monitoring the agent. According to a Cerulli Associates report from 2022, roughly 65% of trusts with over $5 million in assets utilize professional investment management.
Can a Trust Document Limit Delegation?
Absolutely. A well-drafted trust document is the primary mechanism for defining a trustee’s powers and limitations. You can specifically prohibit the trustee from delegating investment authority, or you can establish parameters around permissible delegation. For instance, you could state that the trustee may only utilize investment managers approved by an independent investment committee or that certain asset classes (like real estate or family businesses) must be managed directly by the trustee. Restrictions might include setting minimum qualifications for any delegated investment advisor, requiring regular reporting on performance, or limiting the amount of assets that can be delegated. It’s also vital to include provisions addressing compensation and potential conflicts of interest for any hired professionals.
What Happened When Control Was Lost?
I recall a case involving the Harrison family. Old Man Harrison, a successful rancher, created a trust for his grandchildren, naming his son, Robert, as trustee. He assumed Robert, raised on the land, had a solid financial understanding. The trust document granted Robert broad investment powers. Robert, however, quickly deferred all investment decisions to a “friend” who pitched a risky, high-yield venture capital fund specializing in obscure biotech startups. Within two years, over 40% of the trust’s principal was lost. The beneficiaries, understandably upset, sued. Robert defended his actions by claiming he “trusted his friend’s expertise.” The court ruled against him, citing a failure to exercise independent judgment and a breach of fiduciary duty. The loss wasn’t simply monetary; it fractured the family relationships. It highlighted that even well-intentioned individuals can fall short of their responsibilities without clear guidelines and oversight.
How Did Careful Planning Ensure Success?
Shortly after the Harrison case, the Thompson family approached me. Mrs. Thompson, a meticulous planner, wanted to ensure her children’s inheritance was managed responsibly. We drafted a trust that allowed the trustee (her daughter, Sarah) to delegate investment management, but with strict conditions. The trust stipulated that Sarah could only use advisors from a pre-approved list of firms with a proven track record and fiduciary status. It also required quarterly performance reports, outlining fees, asset allocation, and returns. Importantly, the trust established an investment committee, comprised of family members and a financial advisor, to oversee the process and ensure compliance. Years later, the trust continues to grow steadily, providing a secure future for the beneficiaries. The transparency and accountability built into the trust document not only safeguarded the assets but also fostered trust and harmony within the family. The key was proactively addressing potential issues *before* they arose, creating a framework that prioritized both growth and protection.
Ultimately, restricting a trustee’s ability to outsource investment decisions, or at least carefully defining the parameters of that delegation, is a powerful tool for protecting your beneficiaries’ financial future. It requires thoughtful planning and precise drafting, but the peace of mind it provides is invaluable.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
Map To Point Loma Estate Planning Law, APC, a trust attorney near me: https://maps.app.goo.gl/JiHkjNg9VFGA44tf9
| best estate planning attorney in Ocean Beach | best estate planning lawyer in Ocean Beach |
About Point Loma Estate Planning:
Secure Your Legacy, Safeguard Your Loved Ones. Point Loma Estate Planning Law, APC.
Feeling overwhelmed by estate planning? You’re not alone. With 27 years of proven experience – crafting over 25,000 personalized plans and trusts – we transform complexity into clarity.
Our Areas of Focus:
Legacy Protection: (minimizing taxes, maximizing asset preservation).
Crafting Living Trusts: (administration and litigation).
Elder Care & Tax Strategy: Avoid family discord and costly errors.
Discover peace of mind with our compassionate guidance.
Claim your exclusive 30-minute consultation today!
If you have any questions about: What are the potential consequences of not establishing an irrevocable trust for long-term care planning?
OR
Can a Special Needs Trust be used for supplemental needs beyond basic care?
and or:
What is the importance of securing the estate’s future through debt settlement?
Oh and please consider:
Can you describe a real-world example of a poor executor choice impacting an estate?
Please Call or visit the address above. Thank you.