Estate Planning And Trusts Terminology
Issue: Does the trust language really give the trustee carte blanche?
Answer: No! At first blush, this trust language appears clear, unambiguous and straight to the point. It appears that the trustee has absolute free rein on investing, including the important topic of which assets, and asset classes, to choose. Wrong!
What this trust language does not tell you is that a trustee must be prudent, must have an investment plan or strategy which requires a careful and thoughtful consideration and analysis of many factors, including:
- What asset classes to invest in
- When to invest
- How much to invest
- When to sell or exit a particular investment
This trust language can be misleading or provide false sense of comfort to a trustee. An individual trustee, and certainly one who is inexperienced, may mistakenly believe that such language would permit the trustee to invest entirely in, for example, fixed income instruments such as bonds. Or, a trustee may improperly believe that the trust would permit the trustee to retain a single piece of real estate in trust, and no other assets.
This trust language would not provide a defense to a trustee who retains a non-income-producing piece of real property which comprises, for example, all of the trust’s value – without having a prudent strategy or plan which explains either why that real property is being retained or when and under what circumstances it is expected to be sold.
When it comes to investing, particularly in today’s litigious society, and particularly with certain recent court rulings across the country, broad or seemingly protective investing language in the trust document, including language which attempts to exonerate, or hold a trustee harmless, provides little comfort to trust counsel. It seems everyone knows that a trustee needs to be a “prudent” investor. Few non trust professionals fully understand what that means or how it is applied. Few actually know exactly what that means or how to invest others’ funds. Don’t assume a plain reading of the trust document permits you to invest without a specific plan for each and every asset and asset class, let alone haphazardly or inattentively.
You need to read, re-read, and understand the trust document: even when it seems clear.