In a recent NJ case, a plaintiff claims the trial court erred by failing to find defendant violated The Prudent Investor Act (the Act) found at N.J.S.A. 3B:20-11.1 to -11.12 which requires “[a] fiduciary [to] invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the fiduciary must exercise reasonable care, skill, and caution.” As such, a trustee is under a duty to “invest and manage the trust assets solely in the interest of the beneficiaries.” N.J.S.A. 3B:20-11.5. Specifically,[w]ithin six months after accepting trust assets, the [trustee] shall review the trust assets and shall make and implement decisions concerning the retention and disposition of assets . . . in order to bring the trust portfolio into compliance with the provisions of the trust instrument or with the requirements of [the A]ct.
After the six[-]month grace period, “the trustee is under a duty . . . ‘not merely to preserve the trust property but to make it productive so that a reasonable income will be available for the'” beneficiaries.
But the act provides “[t]he prudent investor rule is a default rule that may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument. A fiduciary is not liable to a beneficiary to the extent that the fiduciary acted in reasonable reliance on those express provisions.” N.J.S.A. 3B:20-11.2(b).
In another recent decision, a NJ trial court analyzed Article VIII of a revocable trust which granted broad investment powers to the trustee, “exclusively empower[ing]” the trustee in her “fiduciary capacity”:
- To hold and retain all or any property received from any source, without regard to diversification, risk, productivity, or the trustee’s personal interest in such property in any other capacity[.]
- To invest and reinvest the trust funds (or leave them temporarily uninvested), in any type of property and every kind of investment[.]. . . .
- To deposit trust funds in any commercial savings or savings and loan accounts.
In her fiduciary capacity, defendant was required to manage the trust assets with a degree of caution. General trust law holds that:
[w]here the opportunity for gain more than compensates for the risk of loss, an ordinary prudent [person] will speculate with his property; but a fiduciary may not speculate with the property in his charge. He must in that regard act more cautiously than a [person] of ordinary prudence; for, unlike the ordinary [person], his concern is not with increasing an estate, but with preserving the principal and providing for a regular income.
But the prudent investor rule expresses a standard of conduct, not outcome. Compliance with the rule is determined in light of the facts and circumstances existing at the time of the fiduciary’s decision or action.
To discuss your NJ trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at email@example.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Trust Attorney