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When trust or estate assets are involved—whether through inheritance, estate planning, or business succession—understanding the duties and responsibilities of trustees becomes essential. For New Yorkers, one of the key guiding principles in this area is the Prudent Investor Act, a statute that governs how fiduciaries, including executors of estates and trustees of trust, must manage and invest assets.
When assets, whether business, investments, or cash, are involved in a trust or estate, this law should be on your radar. This law applies to both executors of estates and trustees of trusts, but because trusts tend to exist for longer periods of time than estates do, we reference trusts more frequently below. Remember that it applies in both situations.
What Is the Prudent Investor Act?
The Uniform Prudent Investor Act (UPIA), adopted by New York and codified in Estates, Powers and Trusts Law (EPTL) §11-2.3, modernized how executors and trustees are expected to invest estate and trust assets. It replaced outdated rules that restricted investments to narrow “legal lists,” and instead introduced a standard that reflects real-world investing: managing assets with prudence, strategy, and portfolio context.
In short, the Act requires executors and trustees to invest assets in the same way a smart, capable investor would—with care, skill, and caution—but always with the best interest of the trust beneficiaries in mind.
Key Principles of the Prudent Investor Rule
Let us break down the core principles that the Act establishes, without the legal jargon.
1. The Whole Portfolio Matters
Executors and Trustees must evaluate investments not as stand-alone choices but as part of an overall portfolio. That means a single “risky” investment might be okay if it balances out other holdings and supports the estate’s or trust’s total return goals. This mirrors how a wise investor builds and manages a diversified portfolio.
2. Every Investment Has to Make Sense for the Estate’s or Trust’s Goals
The executor or trustee has to think about:
- Complying with responsibilities to administer the estate properly and timely (executors)
- The purpose of the trust (trustees)
- Who the beneficiaries are
- When distributions might be needed
- The expected return and risk of each investment
For example, a trust intended to support a retiree now will require different investment decisions than one meant to provide for grandchildren decades down the road.
3. Diversify, Unless There is a Good Reason Not To
Trustees are expected to diversify trust investments. That means spreading assets across different types of investments to reduce risk—just like any savvy investor would. The only exception? If the trust’s purpose is better served by keeping things concentrated.
4. Review and Adapt Quickly
When a trustee takes over, they must promptly review all assets and decide whether to keep or reallocate them to match the prudent investor standard. This is not a “set it and forget it” approach. Trustees have a duty to continuously monitor and adjust the portfolio as markets and trust goals change.
5. Keep Costs Reasonable
Managing money costs money, but the Act says only costs that are appropriate and reasonable are allowed. That means investment advisors, legal fees, and administrative costs all need to be scrutinized and justified.
6. Delegating is not Dodging Responsibility
Trustees can bring in outside experts, like financial advisors or managers, but they cannot walk away from oversight. The trustee must:
- Choose the right expert
- Clearly outline his or her role
- Keep an eye on how they are performing
If the trustee is careless in this process, they are still liable for any loss.
Why This Matters in Disputes Over Wealth and Business Assets
In our firm’s litigation work, especially involving trust and estate disputes, divorces involving business ownership, and business succession fights, the Prudent Investor Rule often comes into play when fiduciaries are present.
Trustees, often family members or longtime advisors, may have made well-intentioned investment decisions that violate the Act. Failing to diversify, ignoring risk, or holding onto old business assets too long can trigger breach of fiduciary duty claims, leading to courtroom battles.
Understanding these duties, and holding executors and trustees accountable to them, is important to protecting the assets that you or your family have spent decades building.
What Should You Do?
If you are:
- Setting up a trust involving business or investment assets
- A beneficiary questioning whether trust funds are being wisely managed
- A trustee who wants to ensure you are following the law
- In litigation involving trust or estate management or fiduciary duties
…you should consider these issues.
Our firm regularly advises and represents clients in high-stakes trust, estate, and business disputes across New York State, and we help ensure that the wealth you’ve worked hard to create is respected, protected, and properly managed.
Want to learn more or schedule a consultation? Contact us today. We will help you understand where you stand and how to take action.
We can help you in Albany, Buffalo, Rochester, New York City, and everywhere in between.
You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.
To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:
- Uncovering Hidden Estate Assets: Understanding SCPA 2103 Proceedings in New York,
- When Fiduciaries Fail: Understanding Suspension and Removal in Trust and Estate Disputes,
- When the Court Steps In: Suspending, Modifying, or Revoking Fiduciary Authority in Trust or Estate Matters,
- Advice and Direction: Empowering Fiduciaries to Make Confident Decisions,
- Don’t Put All of Your Eggs In One Basket (or Bank) -- Why Trustees and Executors Should be Following the Bank Closing News.
This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.