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Determining a trustee’s delegation rights

Previous posts on this blog have detailed the duty that trustees in Mokena have to follow prudent investment strategies when managing trust assets. However, understanding exactly what such strategies may be can be difficult for some asked to assume the role of trustee (particularly if they are chosen from among a settlor’s family or friends). They may not be familiar with managing an investment portfolio, and thus want to hand that portion of their duties off to more qualified parties. The question then becomes to what extent does the law allow them to do that? 

According to Illinois’ Trust and Trustees Act (the same legislation which defines the state’s Prudent Investor Rule), a trustee has a duty not to delegate any responsibilities related to the trust that are exercised through judgment and discretion. The only exception to this is if another with comparable skills and experience related to investments would do the same. Thus, if another would feel equally as inadequate at managing a trust’s investment strategy, then the trustee may delegate that duty to a person or party better suited to handle it. 

Of course, there are stipulations tied to this delegation. They include: 

  • The trustee exercising reasonable skill, care and caution when selecting an investment agent
  • The trustee conducting sufficient checks of a proposed agent’s background and experience
  • The proposed agent being subject to state jurisdiction
  • The proposed agent accepting the same standards as the trustee
  • The proposed agent accepting liability to the trust’s beneficiaries 
  • The trustee stating his or her intentions (in writing) to all trust beneficiaries

Some may claim delegating duties is a sign of trustee negligence. Yet according to the state’s Fiduciary Obligations Act, one is considered to be operating in good faith is his or her actions are done honestly (regardless of perceived negligence).