Answer: Generally, a fiduciary is a person who manages property for the benefit of another, exercises discretionary authority or control over an asset(s), and/or renders comprehensive and continuous investment advice. When you accept the role to trustee, you are a fiduciary and accordingly you become personally liable to all trust beneficiaries. Liability is not determined by the performance of investments but by whether you followed “prudent investment practices”.
The Prudent Investor Act sets forth 7 Uniform Standards of Care to avoid being found liable for investments losing value:
This is one of the most common areas of litigation we see today. Especially with the market falling and stocks losing value, people are afraid to make changes and are standing still, thinking that if they do nothing they will not be liable for losses. NOT TRUE. Trustees do not need to personally guarantee every investment decision is successful. What a trustee should do is follow a system that ensures you are following the Prudent Investor Act standards. There is a 5 Step Investment Management Process you can use to be sure you are within the prudent investor standard:
To answer your question, as long as you followed the 7 Uniform Standards of Care and the 5 step process for managing investments you will not be found liable for any investment losses.
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Dennis B. Sullivan, Esq., LLM, CPA
Estate Planning & Asset Protection Law Center of Dennis Sullivan & Assoc.
Wellesley, Massachusetts 02482
Member of the national ElderCare Matters Alliance, Massachusetts chapter
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