May 30, 2013 Articles

Trustee Bank's Breach of Investment Management Fiduciary Duties

Advice for avoiding pitfalls while adhering to a higher standard of care

by O.A. Ishmael

Prudent investment of trust assets can minimize trustee-fiduciary litigation risk, in addition to maximizing trust beneficiaries' economic interest potential. When investing trust assets, a trustee bank is held to a higher standard of care than the average individual trustee, e.g., the sole lawyer acting as a trustee. This higher standard of care comes from the trustee bank's "professional" fiduciary status. Thus, it is easier for a trustee bank, compared to the "non-professional" individual trustee, to breach investment management fiduciary duties. However, the trustee bank's investment management fiduciary duties originate from the same source as an average individual trustee.

The average individual trustee can greatly minimize her fiduciary litigation risk if she is aware of, and subsequently avoids, the trustee bank fiduciary pitfalls while being held to the lower standard. Similar to the average individual trustee, the trustee bank's powers arise from the trust purposes, trust terms, and state laws. Similarly, the trustee bank's powers are mandatorily exercised. These powers are exercised through an unforgiving standard of care and their accompanying fiduciary duties. The standard of care and fiduciary duties are further defined and refined by the Prudent Investor Rule and uniform acts based on a restatement. As a rule of thumb, the trustee bank will breach the higher standard of care and fail to meet fiduciary duties if the trustee bank jeopardizes the beneficiaries' economic interest potential. Alternatively, for both the average individual trustee and the "professional" trustee bank, the prudent investment of trust assets will maximize the beneficiaries' economic interest potential and minimize fiduciary litigation risk.

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