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Kenneth C. Pope, Henson Trust Specialist

Prudent Trustee Investment Guidelines

What is expected of a trustee is something that had been considered by the Courts over the years, and is now contained in the Trustee Act, as amended July 1, 1999. The rule has been expressed that the trustee must show ordinary care, skill and prudence, he must act as a prudent man of discretion and intelligence would act in his own affairs.

Furthermore, the beneficiary should be able to expect an objective test of what is careful, skilful and prudent and the trustee must document his or her conduct.

Section 27 of the Trustee Act provides:

27.

(1)

Standard of Care - In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

 

(2)

Authorized Investments - A trustee may invest trust property in any form of property in which a prudent investor might invest.

 

(3)

Mutual Funds - Any rule of law that prohibits a trustee from delegating powers or duties does not prevent the trustee from investing in mutual funds.

 

(4)

Common Trust Funds - If trust property is held by-co-trustees and one of the co-trustees is a trust corporation as defined in the Loan and Trust Corporations Act any rule of law that prohibits a trustee from delegating powers or duties does not prevent the co-trustee from investing in a common trust fund, as defined in that Act, that is maintained by the trust corporation.

 

(5)

Criteria - A trustee must consider the following criteria in planning the investment of trust property, in addition to any others that are relevant to the circumstances:

a)

General economic conditions.

b)

The possible effect of inflation or deflation.

c)

The expected tax consequences of investment decisions or strategies.

d)

The role that each investment or course of action plays with the overall trust portfolio.

e)

The expected total return from income and the appreciation of capital.

f)

Needs for liquidity, regularity of income, and preservation or appreciation of capital.

g)

An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

 

(6)

Investment Advice - A trustee must diversify the investment of trust property to an extent that is appropriate to do: a) the requirements of the trust; and b) general economic and investment market conditions.

 

(7)

Investment Advice - A trustee may obtain advice in relation to the investment of trust property.

 

(8)

Reliance on Advice - It is not a breach of trust for a trustee to rely on advice obtained under subsection (7) if a prudent investor would rely on the advice under comparable circumstances.

 

The Trustee Act of Ontario does not authorize or require a trustee to invest in a manner that is inconsistent with the specific terms of a trust. The party creating a trust may often provide a "Letter of Wishes" to the trustee to give guidance in the future management of the trust, but this is not a binding document.