Prudent Investor Rule – Glossary

Trust Terms

Arizona's default standard requiring trustees to invest and manage trust assets with reasonable care, skill, and caution.

The prudent investor rule is a legal standard for how trustees must invest trust assets. A trustee must manage investments the way a careful and reasonable investor would. They must consider the trust's purpose and the needs of its beneficiaries.

What the Rule Requires

The prudent investor rule requires trustees to:

Diversify investments to manage risk
Consider both current income needs and long-term growth
Evaluate each investment in the context of the entire portfolio
Act with care, skill, and caution
Keep investment costs reasonable

How It Applies in Arizona

Arizona adopted the Uniform Prudent Investor Act. Trustees are judged on their overall investment strategy, not individual decisions. A single investment that loses value is not automatically a breach of duty. The overall portfolio strategy must be sound.

What Happens if a Trustee Violates the Rule

Beneficiaries can hold a trustee personally liable for losses. The trustee may need to reimburse the trust from their own funds. This is why choosing a responsible, qualified trustee matters so much. A trustee who ignores diversification or takes excessive risks puts the entire trust at stake.