As an estate planning attorney in San Diego, I frequently encounter clients understandably concerned about preserving wealth for their beneficiaries, and the question of investment strategy within a trust is paramount; many want assurances that assets won’t be subjected to undue risk, leading them to ask if they can dictate a low-volatility investment approach.
What are the trustee’s investment duties?
A trustee has a fiduciary duty to manage trust assets with prudence and care, acting in the best interests of the beneficiaries; this doesn’t necessarily equate to “no risk,” but rather *reasonable* risk relative to the trust’s objectives, timeframe, and the beneficiaries’ needs; while you can certainly *express your preferences* regarding investment philosophy, directly *requiring* a low-volatility portfolio can be problematic. According to a Cerulli Associates report, approximately 65% of investors over age 55 prioritize capital preservation over aggressive growth, illustrating a common desire for lower risk; however, a blanket restriction might violate the trustee’s duty if it hinders reasonable potential returns or fails to account for inflation – and, importantly, it may not be enforceable.
What happens if I try to strictly limit investment choices?
I remember Mrs. Davison, a meticulous woman who, after years of building her family’s wealth, insisted her trust document stipulate only investments in FDIC-insured certificates of deposit; she believed this would guarantee her grandchildren’s financial future, but it severely limited the trust’s potential for growth, and after inflation, the real value of the trust diminished significantly over time; the trustee, a professional wealth manager, attempted to explain the drawbacks, but Mrs. Davison was unwavering, resulting in a stagnant trust that barely kept pace with the cost of living. This rigid approach, while born from good intentions, ultimately disadvantaged the beneficiaries; legal challenges could arise if a beneficiary argues the restriction was imprudent, especially if alternative, reasonably diversified investments would have yielded better results. Approximately 20% of trust litigation stems from disputes over investment performance, underscoring the importance of flexibility.
Can I influence investment strategy without being overly restrictive?
A more effective approach is to clearly articulate your *general investment objectives* and risk tolerance within the trust document; instead of *requiring* low-volatility investments, you can state a preference for a conservative or income-oriented strategy; you could, for example, specify that the trustee should prioritize capital preservation and income generation over aggressive growth, or that the portfolio should be weighted towards lower-risk asset classes like bonds and dividend-paying stocks; this provides guidance without creating an inflexible mandate. I once assisted Mr. Chen, a retired engineer, who, after learning about Mrs. Davison’s situation, asked me to draft a clause stating a “preference for investments with a beta less than 1.0,” a quantifiable metric for volatility; this allowed the trustee some latitude in portfolio construction while still conveying Mr. Chen’s desire for a relatively stable investment approach.
What if the trustee isn’t following my wishes?
I recall a case where a trustee consistently invested in high-growth tech stocks despite the grantor’s expressed preference for a conservative approach; the beneficiaries, concerned about the increased risk, contacted me for assistance; after reviewing the trust document and the trustee’s investment decisions, we sent a formal letter outlining the grantor’s intent and the trustee’s fiduciary duty; the trustee, realizing the error, promptly adjusted the portfolio to align with the grantor’s wishes; ultimately, clear communication and documentation are key; if a trustee consistently disregards your preferences or acts imprudently, you, or a beneficiary, can petition the court for intervention; courts will consider the trust document, the trustee’s actions, and the overall best interests of the beneficiaries when resolving disputes. Approximately 15% of trust disputes are resolved through mediation, highlighting the benefits of alternative dispute resolution.
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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