Prudent administration and the Ohio Uniform Prudent Investor Act

The prudent person standard

R.C. 5808.04 provides that a trustee administers the trust as a prudent person would, considering the purposes, terms, distributional requirements and other circumstances of the trust, and in doing so exercises reasonable care, skill and caution. A trustee incurs only costs appropriate and reasonable in relation to the assets, the purposes of the trust and the trustee's skills (R.C. 5808.05), and a trustee who has special skills or expertise, or was named in reliance on them, uses them (R.C. 5808.06).

The prudent investor rule

The Ohio Uniform Prudent Investor Act (R.C. 5809.01) provides that a trustee invests and manages trust assets as a prudent investor would, considering the purposes, terms, distribution requirements and other circumstances of the trust, with reasonable care, skill and caution, and makes a reasonable effort to verify the relevant facts (R.C. 5809.02). Decisions on individual assets are judged in the context of the portfolio as a whole and an overall strategy with risk and return objectives reasonably suited to the trust, considering general economic conditions, inflation, tax consequences, each investment's role, expected total return, the beneficiaries' other resources, needs for liquidity and income, and an asset's special relationship to the trust's purposes or a beneficiary.

A trustee may invest in any kind of property consistent with the act and diversifies unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying (R.C. 5809.03); the instrument may expand, restrict or eliminate the act (R.C. 5809.01(C)), and terms such as "prudent investor rule" or "legal investments" invoke it (R.C. 5809.07).

The review at the start, and judgment without hindsight

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee reviews the assets and makes and implements decisions on their retention and disposition, to bring the portfolio into compliance with the trust's purposes, terms and circumstances and with the act (R.C. 5809.04). Compliance is determined in light of the facts and circumstances existing at the time of the decision, not by hindsight (R.C. 5809.05); absent a breach of trust, a trustee is not liable for a loss or depreciation or for not having made a profit (R.C. 5810.03). Unless the terms provide otherwise, the act's duties do not require a trustee to monitor or diversify a life insurance policy held as a trust asset (R.C. 5809.031).

The statutes, verbatim

• Duty to act as prudent person

  R.C. 5808.04 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Standard of care - portfolio strategy - risk and return objectives

  R.C. 5809.02 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Investment authority - diversification

  R.C. 5809.03 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

• Duties at inception of trusteeship

  R.C. 5809.04 ↗

  Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.

Common questions

Frequently asked questions

Must an Ohio trustee diversify?

A trustee diversifies the trust's investments unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying (R.C. 5809.03(B)); the trust instrument may alter the act (R.C. 5809.01(C)).

Is an Ohio trustee liable for a market loss?

Absent a breach of trust, a trustee is not liable to a beneficiary for a loss or depreciation in the value of trust property or for not having made a profit (R.C. 5810.03(B)); compliance is judged as of the time of the decision, not by hindsight (R.C. 5809.05).

May an Ohio trustee hire an investment advisor?

A trustee may delegate investment and management functions a prudent trustee of comparable skills could properly delegate, exercising reasonable care in selecting the agent, setting the terms and reviewing the agent's actions, and is then not liable for the agent's decisions (R.C. 5809.06; R.C. 5808.07).

General information about Ohio law, not legal advice.