Trusts: Trustee Duty to Prudently Invest, Duty to Diversify
In investing the assets of a trust in stocks, bonds, securities, etc., a trustee must consider the purposes, terms, distributional requirements, and other circumstances of the trust. Section 456.8-804, RSMo. To this end, the trustee must exercise reasonable, care, skill and caution. Id. When evaluating whether a trustee has properly invested funds, investment decisions are evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. O’Riley v. U.S. Bank, N.A., 412 S.W.3d 400 (Mo. Ct. App. 2013).
Specific consideration is given to nine factors when evaluating a trustee’s investment decisions: (1) general economic conditions; (2) possible effect of inflation/deflation; (3) expected tax consequences of investment decisions/strategies; (4) the role that each investment or course of action plays within the overall trust portfolio; (5) the expected total return from income and the appreciation of capital; (6) other resources of the beneficiaries known to the trustee; (7) needs for liquidity, regularity of income and preservation of capital; (8) an asset’s special value, if any, to the purposes of the trusts or to one or more of the beneficiaries; and (9) the size of the portfolio, nature and estimated duration of the fiduciary relationship and distribution requirements under the trust. Id. In most circumstances, moreover, and unless the terms of the trust state otherwise, the trustee is under a duty to distribute the risk of loss by a reasonable diversification of investments. Warmack v. Crawford, 239 S.W.2d 919, 925 (Mo. Ct. App. 1946).
Compliance with these fiduciary standards is determined “in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.” O’Riley, 412 S.W.3d at 414. Failure of a trustee to prudently invest can give rise to a breach of trust suit for monetary damages or trustee removal.
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