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Protecting Your Role as Trustee When Investments Take Losses

On Behalf of | Dec 30, 2020 | Estate Administration, Estate Planning

Investments are a bit like gambling. You monitor the circumstances carefully and try to make good decisions that will result in profit. Unfortunately, many of the deciding factors in whether your investment succeeds will be outside of your control. You have to play to win, but there is always a risk of taking a loss.

Losses when investing are stressful enough if they only involve your own resources. If you have recently experienced a loss in holdings that you manage for a trust, you may worry about accusations from others.

It could be possible for beneficiaries to claim negligence or even a breach of fiduciary duty in some scenarios that involve major investment losses. Taking the right actions as a trustee can help protect you from such claims.

Trustees should make well-informed and documented decisions

Perhaps there was a very compelling performance record by a particular fund or an investment manager that inspired you to trust them. Perhaps experts have already established that the losses you suffered were the results of broader economic forces.

If beneficiaries try to claim that you breached your fiduciary duty to the trust by losing assets that you invested, you can provide documentation that the investment was a sound one at the time you made it. Also, prove that you performed your due diligence to determine the viability of the investment or the professional that you trusted. So long as you acted in the best interests of the trust with the information you had, you can defend yourself against such claims.

Trustees and beneficiaries need to take a long-term view of assets

Investing in stocks, bonds or even cryptocurrency will involve some risk. Some investments will pay off, and others may not. However, as long as there is appropriate diversification of your investments, single failures won’t necessarily mean the loss of all assets, but instead just a temporary reduction in value.

Investing can lead to significant returns that benefit the trust, but occasional losses are an unavoidable part of investing. As a trustee, making informed choices and being careful to document every decision you make about the use or investment of trust assets will help protect you from challenges. Explaining the long-term benefits of investing resources to beneficiaries may help them to focus on the bigger picture rather than a single loss.

Notice: We are providing this as general information only, and it should not be considered legal advice, which depends on the facts of each specific situation. Receipt of this content does not establish an attorney-client relationship.