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Understanding the Prudent Investor Rule

Here at Zapolis and Associates, P.C., we have helped many in Mokena in establishing trusts to generate income for beneficiaries. Outside of appreciation of trust assets, one of the main ways to do this is through investments. If you are party to a trust whose assets are being invested, then you must place a great deal of the faith the investment acumen of the trustee. It helps in such situations to understand what standards he or she is held to when fulfilling this obligation.

The Illinois Trust Code spells out the duties of a trustee in relation to investments in its Prudent Investor Rule. The specific duties assigned to a trustee by this rule include:

  • A duty to invest and manage trust assets as any prudent investor would given the stated purposes of a trust.
  • A duty to diversify the investments of a trust.
  • A duty to review pre-existing investments upon assuming the role of trustee in order to retain those that are in line with a trust's purposes and dispose of those that are not.
  • A duty to pursue an investment strategy that considers the reasonable production of income and the safety of the trust's capital.

Furthermore, the rule demands that all investment decisions be made considering current economic conditions, the effect of inflation, each investment's role in the trust portfolio, and its tax consequences, among other things.

It is important for you to realize that the Prudent Investor Rule is a test of conduct rather than a measurement of performance. In other words, a trustee may not be violation of it even if his or her investments perform poorly if it is shown that he or she acted in good faith.

You can discover more about protecting trust assets by continuing to explore our site.

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Zapolis & Associates, P.C.
9991 191st Street
Mokena, IL 60448

Phone: 708-390-8936
Phone: 708-478-5050
Fax: 708-478-5052
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