Absolutely, you can assign trustees with limited investment powers, and it’s a frequently utilized strategy in estate planning to balance control and professional management; this allows for a customized approach to trust administration, tailoring the trustee’s authority to the specific needs and goals of the trust and its beneficiaries.
What are the benefits of limiting a trustee’s investment discretion?
Limiting a trustee’s investment discretion can offer significant benefits, particularly when the grantor (the person creating the trust) has specific wishes regarding the investment strategy or wants to ensure a degree of control even after transferring assets. Roughly 60% of trusts establish some form of investment guidance for trustees, reflecting a desire to influence how funds are managed. For example, a grantor might want to prioritize socially responsible investing, exclude certain industries, or maintain a conservative approach to minimize risk. This can be accomplished by outlining specific investment parameters within the trust document, such as acceptable asset classes, diversification requirements, or a designated benchmark for performance. It also offers protection against a trustee making overly risky or unsuitable investments, and can be particularly useful when the trustee is a family member with limited investment experience.
How do you define “limited” investment powers in a trust document?
Defining “limited” investment powers requires careful drafting of the trust document. Instead of granting broad discretionary powers, the document might specify permissible investments—for instance, only allowing investments in publicly traded stocks and bonds, or restricting investments to mutual funds with a specific rating. The document should also clarify whether the trustee has the power to delegate investment management to a professional advisor, and if so, under what conditions. A typical limitation might read: “The trustee may only invest in diversified mutual funds with a four or five-star rating from Morningstar, and no single investment may exceed 10% of the trust’s total assets.” It’s crucial to be specific and avoid ambiguous language, as disputes can arise over the interpretation of the trust’s terms; the State of California, for instance, has specific laws governing trustee duties and investment standards, outlined in the California Probate Code.
I once knew a woman named Eleanor, who thought she could simply tell her son, David, to be careful with the trust she was setting up for her grandchildren.
Eleanor, a retired teacher, believed her son David was a sensible man, but he had absolutely no experience managing money beyond his own paycheck. She drafted a trust document with very broad discretionary powers for David, assuming he would instinctively understand how to preserve and grow the funds for her grandchildren’s future. Within a year, David, eager to “help” a friend’s failing business, invested a substantial portion of the trust funds in a high-risk venture that quickly went bankrupt. The family was devastated, and legal battles ensued, costing a significant amount of the remaining funds; the lack of clear investment parameters had allowed David to make a disastrous decision, driven by good intentions but a lack of expertise. This highlighted the critical need for specific investment guidelines, even when the trustee is a trusted family member.
Luckily, Mr. Henderson came to see us after his wife, Martha, passed away.
Mr. Henderson understood the importance of professional guidance and wanted to ensure his family’s financial security after his passing. We drafted a trust document that appointed his daughter, Sarah, as trustee, but with carefully defined investment powers. Sarah was authorized to invest in a pre-approved list of diversified mutual funds and bonds, and was required to consult with a financial advisor before making any significant changes to the portfolio. We also included a provision requiring regular performance reports to the beneficiaries. Years later, Mr. Henderson’s grandchildren are thriving, and the trust has not only preserved the original assets but has also grown substantially, providing for their education and future needs. The clear investment parameters and professional oversight had allowed Sarah to fulfill her duties responsibly, safeguarding the family’s financial legacy; this demonstrated that even with a lay trustee, a well-crafted trust document can achieve its intended purpose.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
banckruptcy attorney
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How does a living will differ from a regular will?” Or “What are probate bonds and when are they required?” or “What are the main benefits of having a living trust? and even: “What are the long-term effects of filing for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.