As an estate planning attorney in San Diego, I frequently encounter clients wanting to exert control even *after* they’re gone, and one common question is whether they can dictate what kinds of investments their trust can make—the answer is a resounding yes, with some important nuances.
What are “Prudent Investor Rules” and How Do They Affect My Trust?
Traditionally, trustees were held to a fairly strict standard when managing trust assets, but modern trust laws, largely based on the Uniform Prudent Investor Act (UPIA), have shifted toward a more balanced approach. UPIA doesn’t allow you to *completely* eliminate investment options, but it does allow you to express preferences and even impose restrictions. Around 68% of states have adopted some version of UPIA, meaning these guidelines are widespread. You can, for instance, prohibit investments in industries you find morally objectionable – like tobacco or firearms – or in particularly risky ventures like highly speculative cryptocurrency. However, overly restrictive clauses can be problematic; a trust document that forbids *all* stock market investments, for example, could be deemed unenforceable because it fails to allow for reasonable diversification and potential growth, potentially leaving beneficiaries with significantly diminished assets over time.
How Much Control Can I Really Exercise Over Trust Investments?
The key is to strike a balance between expressing your wishes and allowing the trustee the flexibility to act in the best interests of the beneficiaries. You can specify preferred asset classes – like real estate or bonds – or set guidelines for risk tolerance. For example, you might state that the trustee should maintain a portfolio with a “moderate risk” profile, meaning a blend of stocks and bonds. According to a study by Cerulli Associates, approximately 45% of high-net-worth individuals express a strong desire to have a say in investment decisions even after their death. This level of detail provides guidance without completely hamstringing the trustee, and it’s important to remember that the trustee has a fiduciary duty to the beneficiaries, meaning they must always act in their best interests, even if it means deviating from your preferred strategy if circumstances warrant it.
I Heard a Story About a Trust Gone Wrong – What Can I Learn From That?
I once worked with a client, let’s call her Eleanor, who was deeply passionate about environmental conservation. She drafted a trust that explicitly forbade any investments in fossil fuels. Unfortunately, she didn’t specify any alternative investment strategies, and her trustee, while well-intentioned, struggled to build a diversified portfolio that met both Eleanor’s ethical requirements *and* provided reasonable returns. The trustee became paralyzed by the restrictions, and the trust’s value stagnated for years while other portfolios thrived. The beneficiaries, Eleanor’s grandchildren, ultimately had far less money for college than she had intended. It was a painful lesson in the importance of providing clear, comprehensive guidance – not just prohibitions – within a trust document. Eleanor’s story emphasizes that a rigid approach can unintentionally harm those you intend to benefit.
What Does a Successful Trust Look Like When it Comes to Investment Restrictions?
Recently, I helped a couple, the Millers, create a trust with carefully crafted investment restrictions. They were concerned about social responsibility and wanted to ensure their wealth was aligned with their values. We included a clause prohibiting investments in companies with poor environmental records or those involved in unethical labor practices. However, we also specified that the trustee should prioritize investments in renewable energy, sustainable agriculture, and companies with strong governance practices. We even created a ‘screening list’ of approved investment options. The trustee, understanding both the restrictions and the positive directives, built a thriving portfolio that reflected the Millers’ values *and* provided excellent returns. The beneficiaries were not only financially secure but also proud that their inheritance was aligned with their family’s principles. This illustrates the power of thoughtful planning and clear communication.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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