The Prudent Person Standard
This statute sets the bar for how carefully a trustee shall administer the trust. Prudent administration does not require perfection. It requires the trustee to behave the way a prudent person would when handling someone else's property. That means considering the full picture: the trust's purpose, its terms, its distribution schedule, and the circumstances of the beneficiaries.
A trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.
A.R.S. § 14-10804The standard calls for care, skill, and caution. Care means paying attention and staying engaged with the trust assets. Skill means understanding what the job requires or getting qualified help when it goes beyond the trustee's expertise. Caution means avoiding unnecessary risk with trust assets. These fiduciary duties apply to every decision the trustee makes.
Context Matters
Prudent administration is not one-size-fits-all. A trust designed to support a surviving spouse through retirement calls for different decisions than a trust designed to hold a family business for the next generation. The trustee must tailor their approach to the specific trust they are managing. A prudent investor considers the overall portfolio, not just individual holdings.
This is also where professional guidance becomes important. A trustee who does not have experience with investments, taxes, or trust accounting can exercise reasonable care by hiring qualified professionals. Ignoring those gaps, on the other hand, can lead to liability.