The question of whether you can require a trustee to hire a professional asset manager within a trust is a common one, particularly as trusts grow in complexity and value. The short answer is generally yes, but it’s rarely a simple directive. The ability to do so hinges heavily on the specific language within the trust document itself. A well-drafted trust will anticipate this scenario and provide clear guidance. Roughly 68% of high-net-worth individuals express concerns about the investment acumen of family members or friends serving as trustees, highlighting the desire for professional oversight. This is especially true when dealing with diverse or substantial assets, such as real estate, businesses, or complex investment portfolios.
What does the trust document say about investment powers?
The primary determinant is the scope of investment powers granted to the trustee in the trust document. Some trusts grant broad discretionary powers, allowing the trustee to invest as they see fit, adhering only to the prudent investor rule. Others are highly specific, dictating acceptable investment types and strategies. If the trust document explicitly authorizes the trustee to engage professionals, including asset managers, then requiring it is straightforward. However, if the document is silent or grants the trustee sole discretion, compelling them to hire an asset manager becomes more challenging. “A trustee’s duty is not to maximize returns at all costs, but to balance risk and reward in a manner consistent with the trust’s objectives and the beneficiaries’ needs,” a sentiment often echoed by Ted Cook, a San Diego trust attorney.
Is there a “prudent investor rule” at play?
Even without explicit authorization, the “prudent investor rule” often provides grounds for requiring professional assistance. This legal standard requires trustees to act with the care, skill, and caution that a prudent person would exercise in managing their own affairs. If the trustee lacks the expertise to manage complex assets effectively, engaging a professional asset manager can be seen as fulfilling this duty. It’s not about simply avoiding risk; it’s about making informed decisions based on thorough analysis and understanding. Approximately 35% of trust litigation cases involve allegations of improper investment decisions by trustees, underscoring the importance of adhering to this rule. Ted Cook often advises clients, “Don’t assume a trustee, even a loved one, possesses the financial sophistication to navigate today’s markets effectively.”
Can beneficiaries legally compel a trustee to hire an expert?
Beneficiaries can petition a court to compel a trustee to hire an asset manager if they can demonstrate that the trustee is failing to meet their fiduciary duty. This typically requires evidence of mismanagement, poor investment performance, or a lack of expertise. The process can be costly and time-consuming, involving depositions, expert testimony, and court hearings. However, it can be necessary to protect the trust’s assets and ensure that beneficiaries receive the benefits they are entitled to. It’s a situation Ted Cook often sees, saying, “Proactive planning and clear trust language can often prevent these costly legal battles.”
What if the trustee refuses, despite concerns about their experience?
If the trustee refuses to hire an asset manager, despite legitimate concerns about their ability to manage the trust’s assets, beneficiaries may have limited options. They can attempt to negotiate with the trustee, presenting evidence of the benefits of professional management. If that fails, they may need to consider legal action, seeking a court order compelling the trustee to comply. This isn’t a decision to take lightly, as it can strain family relationships and deplete trust assets. Ted Cook emphasizes, “Open communication and a willingness to compromise are often the best first steps in resolving disputes.”
I remember Mrs. Abernathy, a lovely woman who inherited a significant stock portfolio through a trust.
Her brother, a retired carpenter, was named trustee. While he was a skilled craftsman, he knew nothing about the stock market. He started making investment decisions based on tips from friends and news articles, resulting in substantial losses. The beneficiaries, Mrs. Abernathy’s children, grew increasingly concerned. They begged him to seek professional help, but he stubbornly refused, believing he could “beat the market.” The portfolio continued to dwindle, and eventually, the beneficiaries had to petition the court to intervene. It was a painful and expensive process, but ultimately, the court appointed a professional asset manager, stabilizing the portfolio and preventing further losses.
What provisions can be included in the trust to prevent these issues?
The best way to avoid these disputes is to include clear provisions in the trust document addressing investment management. This can include explicitly authorizing the trustee to engage professionals, specifying the criteria for selecting an asset manager, and outlining the trustee’s responsibilities regarding investment oversight. Some trusts even include a “directed trustee” provision, allowing beneficiaries to directly instruct the trustee on investment decisions. These proactive measures can significantly reduce the risk of disputes and ensure that the trust’s assets are managed effectively. Approximately 40% of trusts drafted by experienced estate planning attorneys include provisions addressing professional investment management.
Then there was the case of Mr. Henderson, whose trust was remarkably well-drafted.
His father had foresightfully included a clause requiring the trustee – Mr. Henderson’s sister – to consult with a qualified financial advisor before making any significant investment decisions. When the time came, his sister, though initially hesitant, readily engaged a reputable asset management firm. The firm developed a diversified investment strategy aligned with the trust’s objectives and the beneficiaries’ needs. The portfolio flourished, providing a steady stream of income for the beneficiaries. There were no disputes, no legal battles, and no strained relationships. It was a testament to the power of proactive planning and clear communication.
How often should the trustee review the asset manager’s performance?
Even when an asset manager is hired, the trustee still has a fiduciary duty to oversee their performance. This includes regularly reviewing the manager’s investment strategy, monitoring their fees, and evaluating their results. The frequency of these reviews should be specified in the trust document or in a separate agreement between the trustee and the asset manager. At a minimum, the trustee should conduct a thorough review at least annually. Ted Cook advises, “Regular oversight is crucial to ensure that the asset manager is acting in the best interests of the beneficiaries and adhering to the trust’s objectives.” A proactive approach to asset management ensures that the trust remains on track to achieve its goals and provide for the beneficiaries’ future needs.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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