Prudent investor rule
The prudent investor rule is a standard for how a trustee invests trust assets. Rhode Island law describes it in terms of reasonable care, skill and caution, assessed in light of the trust's purposes, terms, distribution requirements and circumstances. For owners of businesses, real estate and private investments, the rule matters when those assets are held in a trust managed by a trustee.
How it works
The rule evaluates investment decisions in the context of the trust's overall portfolio and strategy. Rhode Island law says individual investments are judged as part of the whole portfolio, with risk and return objectives suited to the trust, and not in isolation.
Virginia law treats the rule as a default duty for trustees, subject to specified exceptions. Trust terms may expand, restrict, eliminate or alter the rule, but a general authorization to invest as the trustee deems fit does not waive it.
Utah evaluates compliance based on the facts and circumstances when the trustee acted, without hindsight.
Where it shows up for owners of businesses, real estate and private investments
The rule applies when a trustee manages trust assets that include an ownership interest in a business, real estate or a private investment. The relevant standard focuses on the trust's purposes, terms, distribution requirements and circumstances, as Rhode Island law describes.
Points that are easy to confuse
The prudent investor rule is a standard for managing trust assets, not a rule that judges each investment by itself.
The rule's details depend on state law and trust terms. Virginia law allows trust provisions to alter the default rule, while Rhode Island law states its own investment standard.
Common questions
Does the rule judge each investment on its own?
Rhode Island law judges individual investment decisions in the context of the whole trust portfolio and an overall strategy with risk and return objectives suited to the trust. An investment is not evaluated in isolation under that rule.
Can trust provisions alter the default rule in Virginia?
Virginia law treats the prudent investor rule as a default that trust provisions may expand, restrict, eliminate or alter. A general authorization for a trustee to invest as the trustee deems fit is not construed as a waiver under Virginia law.