Investment Requirements For Trustees

Effective January 1, 1997


Traditionally, trustees have been concerned almost exclusively with the preservation of trust assets. As a result, trustees have tended to make investments with poor financial returns. Trustees have also been unable to delegate the responsibility for financial losses due to investment risk.

Beneficiaries found that the capital of their trust funds was being eroded by inflation.

To respond to this problem, California recently enacted the Uniform Prudent Investor Act. The Act applies to all existing and new trusts (other than revocable living trusts) as of January 1, 1997. The Act requires that the trustee diversify the investment portfolio of the trust. Strictly investing the assets of the trust in bank accounts and Treasury bills will not be considered "prudent". The Act also permits the trustee to delegate the responsibility for managing the investments of the trust to an agent, although the trustee must exercise care in selecting the agent and must periodically review the performance of the agent.

This alert is intended to make you aware that this new law exists. For more details, consult with your attorney or give us a call at (408) 918-3161.

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Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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