What does prudent administration mean for a New York trustee?

A standard of conduct, not of outcome

EPTL 11-2.3 provides that a trustee invests and manages property held in trust as a prudent investor would, considering the purposes, terms, distribution requirements and other circumstances of the trust, exercising reasonable care, skill and caution. The standard is one of conduct, not outcome or performance: compliance is determined in light of the facts and circumstances prevailing at the time of the trustee's decision or action (EPTL 11-2.3(b)(1)).

The act asks for an overall investment strategy with risk and return objectives suited to the trust, attention to the factors the section lists — among them general economic conditions, inflation, tax consequences and the beneficiaries' needs — and diversification, unless the trustee reasonably determines that it is in the beneficiaries' interests not to diversify (EPTL 11-2.3(b)).

The initial assets

EPTL 11-2.3(b)(3)(D) provides that a trustee, within a reasonable time after the creation of the trust or the trustee's appointment, determines whether to retain or dispose of the initial assets. The section sets no day-count, which makes the record of when the decision was made, and why, the evidence that it was made at all.

The decision sits beside the other duties of the first months: taking possession of and managing the property (EPTL 11-1.1(b)(5)), keeping it insured (EPTL 11-1.1(b)(4)) and keeping it separate from the trustee's own (EPTL 11-1.6).

Impartiality between income and remainder

A trust with an income beneficiary and remainder beneficiaries asks the trustee to serve both. EPTL 11-A-1.3 provides that in allocating receipts and disbursements between principal and income, the fiduciary follows the instrument, then the article, and exercises any discretion impartially, based on what is fair and reasonable to all of the beneficiaries, unless the terms clearly intend that one or more be favored.

Investment choices bear on the same balance: a portfolio built only for income, or only for growth, can favor one group over another. Whether a particular allocation is fair is a fact-specific question the record of the trustee's reasons helps answer.

What no instrument can waive

EPTL 11-1.7 provides that an attempted grant of exoneration from liability for failing to exercise reasonable care, diligence and prudence, or of power to fix an asset's value conclusively, is void as against public policy — for a lifetime trustee, in a will or trust executed on or after the 2018 amendment's effective date. And where a trustee delegates investment functions, an attempted exoneration of the delegee is void (EPTL 11-2.3(c)).

Delegation itself is allowed with care: in selecting the delegee, in setting the scope and terms of the delegation, and in reviewing the delegee's performance (EPTL 11-2.3(c)).

Закони, дослівно

• Property held as fiduciary to be kept separate

  EPTL 11-1.6 ↗

  Зрозуміле просте пояснення; дослівний текст статуту ще не засвідчено в нашій бібліотеці. Дивіться офіційний статут за посиланням вище.

• Limitations on powers and immunities of executors and testamentary trustees

  EPTL 11-1.7 ↗

  Зрозуміле просте пояснення; дослівний текст статуту ще не засвідчено в нашій бібліотеці. Дивіться офіційний статут за посиланням вище.

• Prudent investor act

  EPTL 11-2.3 ↗

  Зрозуміле просте пояснення; дослівний текст статуту ще не засвідчено в нашій бібліотеці. Дивіться офіційний статут за посиланням вище.

• Fiduciary duties; general principles

  EPTL 11-A-1.3 ↗

  Зрозуміле просте пояснення; дослівний текст статуту ще не засвідчено в нашій бібліотеці. Дивіться офіційний статут за посиланням вище.

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