As a beneficiary or grantor of a trust, understanding how your assets are managed is paramount, and yes, you can, and often should, require the trustee to submit an annual investment philosophy statement. This document outlines the trustee’s approach to investing trust assets, including risk tolerance, asset allocation strategies, and long-term financial goals – ensuring alignment with the trust’s objectives and your expectations. California law, specifically the prudent investor rule, dictates that trustees must act with the care, skill, prudence, and diligence that a prudent person acting in a like capacity would use. This isn’t just about numbers; it’s about transparency and accountability in managing potentially substantial wealth – roughly 68% of high-net-worth individuals utilize trusts for estate planning purposes, highlighting the importance of diligent oversight.
What investment strategies should my trustee be employing?
A well-defined investment philosophy should detail the trustee’s strategy, moving beyond simply chasing returns. It should clearly articulate the asset allocation model – the mix of stocks, bonds, real estate, and other investments – and explain why that mix is appropriate for the trust’s goals and the beneficiary’s needs. For instance, a trust established for a young grandchild’s education might have a more aggressive, growth-oriented portfolio, while a trust designed to provide income for a retiree would likely favor more conservative, income-generating investments. It should also address diversification, risk management, and the process for rebalancing the portfolio to maintain the desired asset allocation. According to a recent study by Cerulli Associates, trusts with clearly defined investment policies experience, on average, 15% greater long-term returns.
How can I ensure my trustee is following a prudent investment strategy?
Requiring an annual investment philosophy statement is a proactive step, but it’s crucial to also review the statement carefully and ask questions. Does the stated philosophy align with the trust document’s provisions and your understanding of the beneficiaries’ needs? Is the trustee’s investment approach consistent with the level of risk you’re comfortable with? Regularly comparing the actual investment performance against benchmarks and the stated philosophy can reveal potential issues. I recall a situation with a client, Mrs. Davison, whose trust was managed by a local bank. For years, the bank simply invested in a handful of blue-chip stocks with minimal diversification. When she requested an explanation of their investment strategy, they couldn’t provide a clear answer. After a thorough review with our firm, it became apparent that the bank was prioritizing their own fees over maximizing returns for the trust.
What happens if my trustee isn’t adhering to a sound investment philosophy?
If you discover that your trustee isn’t following a prudent investment strategy or is failing to adhere to the stated investment philosophy, you have several options. First, attempt to address the issue directly with the trustee, explaining your concerns and requesting corrective action. If that fails, you may need to seek legal counsel and consider filing a petition with the court to compel the trustee to act in accordance with the trust terms and applicable law. The consequences for a trustee who breaches their fiduciary duty can be significant, including liability for financial losses, removal from their position, and even criminal charges. Approximately 30% of trust disputes involve allegations of improper investment management, demonstrating the importance of vigilance and legal recourse when necessary.
How did proactively requesting an investment philosophy work out for another client?
I had another client, Mr. Henderson, who was deeply concerned about the future financial security of his disabled son. He established a special needs trust and, as a condition of appointment, required the trustee to submit an annual investment philosophy statement outlining a conservative, income-oriented strategy designed to preserve capital and provide a stable stream of income for his son’s care. Each year, Mr. Henderson carefully reviewed the statement, asked questions, and ensured that the trustee’s investment decisions were aligned with his son’s long-term needs. This proactive approach provided Mr. Henderson with peace of mind knowing that his son’s financial future was secure. The clarity and accountability fostered by the annual investment philosophy statement prevented potential misunderstandings and ensured that the trust assets were managed responsibly. This is a testament to how beneficial a detailed investment plan can be.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
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Feel free to ask Attorney Steve Bliss about: “What professionals should be part of my estate planning team?” Or “Can probate be avoided with a trust?” or “How do I make sure all my accounts are included in my trust? and even: “Is bankruptcy a good idea for small business owners?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.