Summary of Prudent Investor Rule
The successor
trustee must invest the trust’s assets in accordance with Florida’s
Prudent Investor Rule, Florida Statutes
518.11 and
518.112. The
following is a summary of this law, which should be applied to the
successor’s investment decisions based on the terms and conditions
contained in the trust agreement.
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The successor trustee is required to
invest and manage the trust’s assets as a prudent investor would.
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The successor trustee must review the
trust’s existing assets within a reasonable time after becoming the
successor trustee. The successor trustee then, as a prudent investor,
must make decisions concerning the retention or disposition of the
existing assets.
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The successor trustee is
required to diversify the investments, unless the trustee believes it
is not in the best interest of the beneficiaries. The successor
trustee must pursue an investment strategy that includes both the
production of income and the safety of capital considering the current
and remainder beneficiaries of the trust.
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The successor trustee is required to
develop an overall investment strategy, which incorporates both risk
and return. This standard relates to the trust’s entire portfolio, not
just to an individual investment held in the portfolio.
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The successor trustee’s decisions for the investment
portfolio are to be judged based on the facts and circumstances
existing at the time the decision was made. These factors would
include inflation,
tax consequences, economic conditions, expected total return, etc.,
while also considering that the successor trustee should only incur
reasonable and appropriate costs.
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The Prudent
Investor Rule is a test of conduct and not of the resulting
performance of the investment portfolio.
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If the successor trustee has special
skills and expertise in prudent investing, then he is required to use
these skills for developing and monitoring the trust’s investment
portfolio. Otherwise, the successor trustee should
delegate his investment functions to an
investment agent. The successor trustee has the duty to exercise
reasonable care, skill and caution: (1) in the selection of the agent,
(2) in the establishment and scope of specific terms of delegation,
and (3) in the periodic review of the agent’s actions.
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If the
successor trustee delegates the investment function, he is required to
give written notice to the current beneficiaries within 30 days. If
the successor trustee has followed this procedure, he is not
responsible for the investment decisions or actions made by the
investment agent.
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