As the trustee, you have the ability to purchase stocks, mutual funds, bonds, and other securities using trust funds for the benefit of the beneficiaries. However, beneficiaries may seek to hold you financially and personally responsible if an investment suffers significant losses.
Our Florida trust administration attorneys have advised countless trustees on how to manage assets and uphold their duties under the law. We have these words of wisdom for trustees considering new investments.
Common Trustee Mistakes When Investing Trust Funds
You should know that beneficiaries cannot hold you accountable for losses simply because an investment lost value. State law dictates that the strength of a trust’s portfolio shouldn’t be judged on any one asset. Instead, beneficiaries will need to prove that you did not do your due diligence in preventing the loss or acted in a way that breached your fiduciary duty to the trust.
The best way to make wise investments is to know your duties under the law. When investing trust funds, it falls on you to:
- Check for restrictions. Read through the trust document to see if the trust maker provided instructions or restrictions on investments. If there are any specific provisions, such as investing in renewable resources or companies based in the United States, those instructions should be reflected in your choice of investment. Similarly, any prohibited investments should be sold off and avoided in the future.
- Review current investments. As a fiduciary, you’re expected to review the trust’s current investment portfolio and implement any changes needed to comply with the trust maker’s wishes and state law. The decision of whether to retain or dispose of an asset should be consistent with the trustee’s duty of impartiality and depend on the asset’s value to one or more beneficiaries or value to the purposes of the trust.
- Have an investment strategy. Under the Florida Prudent Investor Rule, trustees must devise an investment strategy to generate a reasonable amount of income while safeguarding capital. A trustee must consider the general economic conditions, possible effects of inflation, expected total return, potential tax consequences, and each investment's role in the overall portfolio.
- Watch over your portfolio. You’re free to delegate investment decisions to a broker or financial advisor, but this won’t absolve you of your duties. You are still expected to review the investments regularly to make sure they’re adequately diversified and functioning normally.
- Make required disbursements. As the trust earns income from each investment, the trustee is responsible for disbursing funds to the beneficiaries according to the terms of the trust. You must also file all applicable tax returns and send appropriate tax payments to the IRS. You could also hire an attorney, accountant, or tax professional to help with financial matters relating to the trust.
- Incur only reasonable expenses. You’re expected to keep trust costs low and only spend funds on appropriate and necessary purchases. Beneficiaries may object to paying brokers and accountants using trust funds, so you must keep accurate records of each cost and detail why each expense is reasonable.
Let Us Answer Your Questions About Trust Administration
If a beneficiary or other interested party is threatening legal action, you need to speak to our lawyers right away. At DeLoach, Hofstra & Cavonis, P.A., we have a wealth of experience in trust management and know the laws and limitations in these claims. In some cases, a beneficiary might only have six months to sue a trustee for investment losses or a dip in the stock market.
Use our online contact form or call us at (727) 397-5571 to set up a consultation and get a personalized assessment of your case, or read through our free book, Protecting Your Homestead Property from the Nursing Home.