Trustee Concerns: Portfolio Management in Today’s Market

It is not unusual for a non-professional person to be named as a trustee in a family trust. Family members are usually happy to serve as a trustee if asked. Often times the trust may be for the minor children of a deceased family member. Or, the trust might be for a disabled person. In any case, given today’s economic conditions, non-professional trustees might be very nervous about making investment decisions regarding the trust portfolio.

Many, if not most, trust estates have lost value in the past months. This is true even for estates where trustees carefully and closely managed the investments. Trustees who have seen such losses in the portfolios they manage may be feeling badly, and may even be concerned about their legal liability. Beneficiaries may be wondering if the trustee has been acting prudently.

In Washington, the investment of trust funds is governed by RCW Chapter 11.100. A trustee is clearly a fiduciary, and owes special duties to the beneficiary. The requirements/responsibilities of the trustee are sometimes spelled out in the trust. The trust is the first place to look to determine the legal obligations of the trustee. If the trust itself does not specify the trustee’s obligations, then look to RCW Chapter 11.100, which specifies the duties of the trustee.

Section RCW 11.100.020 says that the trustee should consider the overall portfolio of assets and apply a total asset management approach. The section goes on to identify nine different factors that a trustee should consider when applying this approach, including general economic conditions, length of term of the investments, liquidity needs, income and safety of the capital, taxes, etc. If you are a non-professional trustee, you will probably want to document your considerations when making investments.

A review of RCW 11.100.020 is very important for a non-professional trustee. Here is a document listing some sections (but not all) of RCW 11.100. Start by reading these sections. Hopefully, reviewing these will help you to more fully understand your obligations as trustee, and may even reduce some anxiety about your management responsibilities. If you have further questions or concerns, discuss them with your investment advisor and/or your lawyer.