My dad who's dead now set up a trust for me with a pretty good amount of money. The trustee's a bank that my dad used to do business with. The bank and the guy who works with me has not made any money with the trust funds and instead lost some in a time when the market has been going up. The rest of the funds are in bonds and they don't seem to be changing that much. Can you you tell me what the Prudent Investor rule is for trustees and whether I can sue this trustee for loss of some of the principal? Thanks.
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The Editor, Mark Bernardin, is an attorney living in MA. Please send your suggestions or comments to: TheEditor@malawforum.com
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The answers and information provided on this site are for informational purposes only and are NOT substitutes for professional legal advice. Before making legal decisions, you should discuss your specific circumstances with an attorney.
Fiduciary duties of trustees in MA
Massachusetts General Laws Chapter 203C, is known as the Prudent Investor Act. You can read through it for more information. Section 3 of the act says: "(a) A trustee shall invest and manage trust assets as a prudent investor would, considering the purposes, terms, and other circumstances of the trust(.) In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution."
However, the Act is part of a larger set of duties owed to beneficiaries by trustees. The big picture: A trustee has a duty to exercise reasonable care and skill in administering the trust, and may be personally liable for losses resulting from her failure to exercise reasonable care and skill. In other words, trustees can be sued for a breach of a fiduciary duty. But if an investment loses money, that does not necessarily mean that the trustee is liable. Stocks sometimes go down. Rather, under case law and the Prudent Investor Act, the trustee's conduct must be reasonable in the context of the facts and circumstances that existed at the time the investment was made.
So, the Prudent Investor Act instructs trustees to consider various factors, including: (1) economic conditions; (2) the impact of inflation or deflation; (3) tax consequences; and (4) the role that a particular investment will play within the overall portfolio and strategy.
If you truly believe that the trustee is not satisfying his fiduciary duties with respect to your trust, then you should contact an attorney with experience in trust administration and ask her to review the situation. Even if your attorney does not believe you have a legitimate claim for breach of fiduciary duties, she can advise your regarding your options for removing or replacing the trustee. One interesting note that I'm sure the attorney will discuss with you: If you do sue the trustee for breach of fiduciary duty, she may be able to use trust assets to defend herself. Hope that helps.