Trustees are to administer a trust or estate in accordance with the terms of the trust or will in spite of the provisions of UPIA.[i] Otherwise, trustees are obligated to comply with the prudent investor rule.[ii] The prudent investor rule consists of the trustee considering the terms, purposes, requirements for distribution and other circumstances of the trust when investing and managing trust property. The trustee is to satisfy this standard by exercising reasonable care, skill and caution.[iii] This standard dates back to Harvard College v. Amory, 26 Mass. (9 Pick) 446 (1830). Trustees should “observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”[iv]
A trustee’s decisions concerning investment and management is not viewed in isolation but in the context of the trust portfolio as a whole and as part of an overall strategy of investment having objectives for risk and return that are reasonably suited to the trust.[v]
Trustee’s shall consider the following circumstances in investing and managing trust property when relevant to the beneficiary: (a) general economic conditions; (b) the possible effect of inflation; (c) the expected tax consequences of decisions or strategies; (d) he role that each investment or course of action plays with the overall trust portfolio; (e) the expected total return from income and appreciation of capital; (f) other resources of the beneficiaries; (g) needs for liquidity, regularity of income, and the appreciation of capital; and (h) an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.[vi]
A trustee may invest in any kind of property or type of investment provided the property or investment is consistent with the standards of UPIA and the trustee has made a reasonable effort to verify facts relevant to the investment and management of the trust property. Trust property and investments may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property.[vii]
Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.[viii]
- Diversification: UPIA obligates a trustee to diversify investments of a trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.[ix]
- Investment Vehicles and Strategies: Under UPIA, the following terms or comparable language, when found within a trust, unless otherwise limited or modified, authorize any investment or strategy permitted under UPIA: (a) “investments permissible by law for investment of trust funds;” (b) “legal investments;” (c) “authorized investments;” (d) “using the judgment and care under the circumstances then prevailing that persons of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probably income as well as the probable safety of their capital;” (e) “prudent man rule;” (f)”prudent trustee rule;” (g) “prudent person rule;” and (h) “prudent investor rule.”[x]
- Power to Delegate: A trustee can delegate functions of investment and management that a prudent trustee of comparable skill could properly delegate under the circumstances provided the trustee exercises reasonable care, skill and caution in selecting an agent, establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and periodically reviews the agent’s actions in order to verify the agent’s performance and compliance with the terms of delegation.[xi] Agents owe a duty to the trust to exercise reasonable care to comply with the terms of the delegation when performing the delegated function.[xii] A trustee will not be liable to the beneficiaries or to the trust for the decisions or actions of an agent to whom a function was delegated provided the trustee complied with the requirements of delegation listed herein.[xiii]
- Impartiality: Under a trustee’s Duty of Impartiality, if a trust has two or more beneficiaries, the trustee is required to act impartially in investing and managing the trust property. The Trustee is to consider the differing interests of the beneficiaries.[xiv] In exercising certain powers under the Uniform Principal and Income Act (UPAIA) (1997), such as a power to adjust or a discretionary power, the trustee must act impartially based on what is fair and reasonable to all beneficiaries provided the trust does not clearly manifest an intention that the trust favor one or more beneficiaries.[xv]
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[i] Nev. Rev. Stat. § 164.710.
[ii] Nev. Rev. Stat. § 164.740.
[iii] Nev. Rev. Stat. § 164.745(1).
[iv] Unif. Prudent Investor Act (1994) citing Harvard College v. Amory, 26 Mass. (9 Pick) 446 at 461 (1830).
[v] Nev. Rev. Stat. § 164.745(2).
[vi] Nev. Rev. Stat. § 164.745(3)(a)-(h).
[vii] Nev. Rev. Stat. § 164.745(4) and (5).
[viii] Nev. Rev. Stat. § 164.765.
[ix] Nev. Rev. Stat. § 164.750.
[x] Nev. Rev. Stat. § 164.775.
[xi] Nev. Rev. Stat. § 164.770(1).
[xii] Nev. Rev. Stat. § 164.770(2).
[xiii] Nev. Rev. Stat. § 164.770(3).
[xiv] Nev. Rev. Stat. § 164.720(1).
[xv] Nev. Rev. Stat. § 164.720(2).