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.