Prudent administration and Virginia's prudent investor rule

The standard

Va. Code § 64.2-766 provides that a trustee administers the trust as a prudent person would, by considering the purposes, terms, distributional requirements and other circumstances of the trust, exercising reasonable care, skill and caution. The trustee incurs only costs that are reasonable in relation to the trust property, the purposes of the trust and the skills of the trustee (Va. Code § 64.2-767), and a trustee with special skills, or named in reliance on them, uses them (Va. Code § 64.2-768).

The prudent investor rule

A trustee who invests and manages trust assets owes the beneficiaries a duty to comply with the prudent investor rule (Va. Code § 64.2-781). The rule is a default the trust may expand, restrict or eliminate — but a general grant of discretion does not waive it unless the document expressly says so, by reference to the rule, to speculative investments or to a specific asset such as a closely held business (Va. Code § 64.2-781). The trustee diversifies unless special circumstances make the trust's purposes better served without it (Va. Code § 64.2-783), invests solely in the beneficiaries' interest and impartially among them (Va. Code § 64.2-785), and incurs only appropriate costs (Va. Code § 64.2-786).

The review at the start, and no hindsight

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee reviews them and makes and implements decisions concerning their retention and disposition, to bring the portfolio into compliance with the trust's purposes, terms and circumstances and with the rule (Va. Code § 64.2-784) — Virginia counts no days. Compliance is determined in light of the facts and circumstances when the trustee decided or acted, not by hindsight (Va. Code § 64.2-787); a record of what the trustee knew and why it decided is what shows prudence. What the instrument authorizes, and whether a particular holding fits, are questions for a licensed Virginia attorney of your choosing or an investment professional.

The statutes, verbatim

• Prudent administration

  Va. Code § 64.2-766 ↗

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

• Prudent investor rule

  Va. Code § 64.2-781 ↗

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

• Diversification by trustee

  Va. Code § 64.2-783 ↗

  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

  Va. Code § 64.2-784 ↗

  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 a Virginia trustee diversify?

Unless the trustee reasonably determines that, because of special circumstances, the trust's purposes are better served without diversifying (Va. Code § 64.2-783).

Can a Virginia trust instrument waive the prudent investor rule?

Yes, but only by language that expressly manifests the intention — a general grant of discretion does not (Va. Code § 64.2-781).

When must a Virginia trustee review the assets?

Within a reasonable time after accepting the trusteeship or receiving the assets (Va. Code § 64.2-784).

General information about Virginia law, not legal advice.