Liquidating distribution or dividend
(1) The standard of prudence is applied to any investment as part of the total portfolio, rather than to individual investments. A leading introductory text on modern portfolio theory is R. Brealey, An Introduction to Risk and Return from Common Stocks (2d ed. This Act promotes uniformity of state law on the basis of the new consensus reflected in the Restatement of Trusts 3d: Prudent Investor Rule. California, Delaware, Georgia, Minnesota, Tennessee, and Washington revised their prudent investor legislation to emphasize the total-portfolio standard of care in advance of the 1992 Restatement.In the trust setting the term "portfolio" embraces all the trust's assets. (2) The tradeoff in all investing between risk and return is identified as the fiduciary's central consideration. (3) All categoric restrictions on types of investments have been abrogated; the trustee can invest in anything that plays an appropriate role in achieving the risk/return objectives of the trust and that meets the other requirements of prudent investing. (4) The long familiar requirement that fiduciaries diversify their investments has been integrated into the definition of prudent investing. (5) The much criticized former rule of trust law forbidding the trustee to delegate investment and management functions has been reversed. These changes in trust investment law have been presaged in an extensive body of practical and scholarly writing. Posner, The Revolution in Trust Investment Law, 62 A. These statutes are extracted and discussed in Restatement of Trusts 3d: Prudent Investor Rule § 227, reporter's note, at 60-66 (1992).Delegation of Duties - In making investments, as in other matters relating to the administration of the trust, the trustee is under a duty not to delegate to others the doing of acts which the trustee can reasonably be required personally to perform.He cannot properly delegate to another power to select investments.Where, however, the risk is not out of proportion, a man of intelligence may make a disposition which is speculative in character with a view to increasing his property instead of merely preserving it.Such a disposition is not a proper trust investment, because it is not a disposition which makes the preservation of the fund a primary consideration.
Whether the trustee has acted properly in making an investment depends upon the circumstances at the time when the investment is made and not upon subsequent events.Gordon, The Puzzling Persistence of the Constrained Prudent Man Rule, 62 N. Virginia Code § 26-45.1 (prudent investing) (1992). New York legislation drawing on the new Restatement and on a preliminary version of this Uniform Prudent Investor Act was enacted in 1994. See generally Restatement (Second) of Trusts §§ 197-226A (1959) [hereinafter cited as Restatement of Trusts 2d; also referred to as 1959 Restatement]. This Act is centrally concerned with the investment responsibilities arising under the private gratuitous trust, which is the common vehicle for conditioned wealth transfer within the family. Other fiduciaries - such as executors, conservators, and guardians of the property - sometimes have responsibilities over assets that are governed by the standards of prudent investment. The Restatement of Trusts 2d (1959) also tracked the language of the case: "In making investments of trust funds the trustee is under a duty to the beneficiary . Sections 2 through 9 of this Act identify the main factors that bear on prudent investment behavior. Almost all of the rules of trust law are default rules, that is, rules that the settlor may alter or abrogate.Nevertheless, the prudent investor rule also bears on charitable and pension trusts, among others. The Supreme Court has said: "ERISA's legislative history confirms that the Act's fiduciary responsibility provisions 'codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.'" , 489 U. It will often be appropriate for states to adapt the law governing investment by trustees under this Act to these other fiduciary regimes, taking account of such changed circumstances as the relatively short duration of most executorships and the intensity of court supervision of conservators and guardians in some jurisdictions. Subsection (b) carries forward this traditional attribute of trust law.It is not ordinarily the duty of a trustee to invest only in the very safest and most conservative securities available.
Thus, assuming that United States government bonds are the safest and most conservative securities available but that the income yield thereon is lower than on other securities, it is not necessarily the duty of the trustee to invest the whole trust property, or even any part of it, in such bonds, even when no question of favoring one beneficiary over another is involved.
Robinson, University of Virginia, School of Law, 580 Massie Road, Charlottesville, VA 22903 Advisor to drafting committee Joseph Kartiganer, Prefatory Note Over the quarter century from the late 1960's the investment practices of fiduciaries experienced significant change.