The Prudent Investor Rule

The old Prudent Man Rule – rules governing trustee behavior for managing the assets of a trust, stemmed from an 1830 court ruling in the US and has been replaced by the new Prudent Investor Rule.

Basic Principles

The basic principles of the Prudent Investor Rule are:

  • Diversification is critical to minimizing risk.
  • A trust’s tolerance for risk must be determined.
  • Trustees can only incur reasonable transaction expenses for management of trust assets.
  • The trustee is bound by a fiduciary duty of impartiality to balance the income needs of current income beneficiaries with the long term growth needs of future income beneficiaries.
  • Trustees can delegate responsibilities to experts for specialties in which they lack sufficient knowledge.
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