Both Trustees and Personal Representatives in Florida are required to invest Trust and Estate assets in accordance with the Prudent Investor Rule which takes into account modern portfolio theories of investing.
The Prudent Investor Rule (the “Rule”) requires the Fiduciary to minimize investment risk through portfolio diversification.
A properly diversified portfolio leaves only market risk, which, at the proper level, allows growth at a rate meaningfully greater than inflation.
A decision to not incur any market risk is not permitted under the Rule because it is a decision to ignore inflation.
The Rule also provides that a Fiduciary’s duty to make property productive will include securing a return to the principal as well as income production, with these competing interests being balanced in a way that is appropriate to the particular Trust or Estate.
The Rule allows a Fiduciary to delegate decision-making responsibilities and may even require a Fiduciary to seek assistance where the Fiduciary does not have the skills to maintain a properly diversified portfolio.
Thus, Fiduciaries who are not sophisticated investors are required to seek professional advice on how to invest the assets of the Estate in a way that satisfies the new Prudent Investor Rule requirements or be subject to possible liability.
If an interested person files an action criticizing the investment decisions of a Fiduciary, the Court will look to the Fiduciary’s conduct at the time the investment decision is made to determine if a breach of Fiduciary duty has occurred.
In determining the amount of liability for improperly invested accounts, the Rule compares the performance of the portfolio in question to how it would have performed if it had been appropriately invested.
Thus, it is important that the Fiduciary obtain appropriate advice to ensure that the assets are invested in accordance with the Prudent Investor Rule.