Worried about Florida trust investments ? Trust investment losses a concern? Everyone knows that a Florida trustee must invest trust assets “prudently.” After all, the Florida Trust Code regulates a Florida trustee’s conduct just as a Palm Beach Probate is ruled by the Florida Probate Code. And everyone seems to know that Florida trustees are governed by Florida’s “prudent investor rule” of Chapter 518 of the Florida Statutes, ‘though few may actually know what it means to be a prudent trustee or prudent investor. Whether you choose to delegate investment functions to an investment agent under the Florida Trust Code or not, here’s a few things you can learn, or re-remember, from a recent Louisiana case which lost millions.
PENSION FUND INVESTS IN FUND WHICH GUARANTEES 12% RETURN ( yea………………. right )
According to the New York Times, www.nytimes.com, a retirement fund invested with a money manager, or through an investment consultant, in a fund which guaranteed a 12% return. (First red flag). Pretty good in an environment of low interest rates, don’t you think ? New York Times reporter Rachel Abrams reports that the money manager was portrayed , or described as, or believed to be, a long established hedge fund manager. That’s great but there’s lots of hedge funds that close, right? And hedge funds and similar alternative investments can be a way for a trustee to diversify a trust portfolio, but you better be sure about where you are investing money— and HOW the trust money is being invested. Especially if you are a Florida trustee or Florida personal representative.
HURRY, HURRY, HURRY…… INVEST NOW !
Evidently, the investment “opportunity” was a take it or leave it offer….. one so good that it wouldn’t be around if the pension fund didn’t invest right then. (Second red flag).
$100 MILLION LOST THROUGH “BAD” INVESTMENT
Two pension funds or retirement organizations invested $100 Million in the fund. One board member said it was “too good to be true.” (3rd red flag.)
BAD INVESTMENTS, UNLUCKY OR PONZI SCHEME ?
There’s been a bankruptcy filing and there is a court appointed bankruptcy trustee which has described the investment as having elements of a Ponzi scheme. The assets are evidently worthless.
LESSONS FOR A FLORIDA TRUSTEE
So, what can a Florida trustee learn about investing Florida trust funds in this post-Madoff world ? Does it matter to a Florida trust beneficiary, or a probate court judge if the Florida trustee was unlucky, or whether the trust investments just didn’t work out ? Ask a Palm Beach Trust Litigator .
- You don’t need to be the victim of a Ponzi scheme to be liable as a Florida trustee for bad investments.
- If you don’t have experience investing trust assets, you should resign as trustee — or hire an “investment agent” under the Florida Trust Code to whom you can delegate all investment authority. You need to carefully select that investment agent and monitor him, her or it. This can be a trustee’s best defense.
- Why not hire a co-trustee? Bring in a bank or a trust company and use their money managers, record keeping software, economists and committees to assist you with not only investing Florida trust assets, but also complying with Florida’s prudent investor rule for Trustees. While they are at it, they can help you administer the Florida trust properly.
- DON’T invest trust assets if you don’t know what you are investing in. Some of the better trust companies exited certain stocks in the late 90’s and last decade, before the first meltdown, when they simply couldn’t understand some companies’ reports, financials and footnotes. Good for them. They got heat from investors and some trust beneficiaries, but the move was prudent.
- BEWARE of GUARANTEED investment returns.
- Have an investment strategy. A plan. Florida Trust Law requires you, the Florida Trustee, to have one.
- Holding all cash is not an investment strategy.