Trustees do not have an easy job. They are required to invest the assets of a Trust, not according to their own needs and investment goals, but according to the needs and investment goals of the Trust beneficiaries. In most states, how a Trustee should go about doing this is governed by the Uniform Prudent Investor Act, which embraces modern portfolio theory.
The key component of modern portfolio theory is that the investment objectives and risk tolerance of the individual investor need to be analyzed. After doing that, an investment strategy should use that information to develop a diverse portfolio. This is what a Trustee must do to avoid liability under the Uniform Prudent Investor Act.
Modern portfolio theory can be difficult for professionals at times. For non-professionals it can be a nightmare because it requires knowledge of different types of investment vehicles, there risk level, and expected returns. Fortunately, Trustees can hire professionals to assist them. Many attorneys offer Trust Administration services. If you are a Trustee, consider scheduling an appointment.
Stephen A. Mendel, Estate Planning Attorney
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