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Understanding investing rules as a trustee

If someone you love and respect has designated you to be the trustee of a testamentary trust, you may already know the challenges ahead. Whether the trust was created to provide for a minor child, an individual with special needs or some other beneficiary, you can expect to devote much time and energy to managing the trust effectively according to the provisions in its documents.

Despite changes in tax laws regarding trusts, these are still valid estate planning tools for meeting the needs for which their grantors create them. With careful planning and investment, the assets funded to the trust can provide security and peace of mind to the beneficiaries. In order to fulfill this duty as a trustee, you may find it helpful to have some basic information about the laws in British Columbia regarding investing trust assets.

What the law requires

Your job as the trustee is to administer the assets by following the instructions in your loved one's will or within the trust documents. You may be fortunate to have instructions that outline precisely how the deceased expects you to invest the assets to maximize the wealth the trust holds as well as directives for distributing the funds to the beneficiaries. It will be your responsibility to follow those instructions in good faith.

However, if the terms of the trust are vague or allow more freedom for your decisions, the law stipulates the following:

  • Your principal duty is to preserve the assets within the trust.
  • You must invest carefully, as any prudent investor would do.
  • You must invest while keeping in mind both the beneficiary currently receiving an income from the trust and those who will receive the trust's assets when the beneficiary dies, unless the trust dictates otherwise.
  • You must always have in mind the needs of the beneficiaries while balancing the conditions of the market with the potential tax ramifications of your investments, among other factors.

If the stipulations in the trust are broad or vague, it may be tempting to interpret that language as the grantor giving you permission to take great risks with the funds in the trust. You may also believe that discretionary language protects you from allegations of breaching your fiduciary duties toward the trust and its beneficiaries if your risky investments fail. This is not always the case, and the courts have a reputation for ruling on the side of caution and prudence when it comes to investing trust assets.

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