Investing With the Whole Picture in Mind
This statute spells out what it actually means to invest trust assets prudently. A trustee must consider the trust's purpose, its distribution schedule, tax consequences, inflation, and the beneficiaries' other resources. The standard is reasonable care, skill, and caution, not perfection.
A trustee shall invest and manage trust assets as a prudent investor would by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill and caution.
A.R.S. § 14-10902(A)One of the most practical aspects of this statute is how it evaluates performance. A single investment that loses value does not automatically mean the trustee failed. The law looks at the portfolio as a whole, within the context of an overall strategy that balances risk and return for the trust's specific situation.
Factors a Trustee Must Consider
The statute lists specific factors that should guide investment decisions: general economic conditions, inflation or deflation, expected tax consequences, how each asset fits the broader portfolio, expected total return, the beneficiaries' other resources, liquidity needs, and whether an asset has special significance to the trust or a beneficiary.
A trustee's investment and management decisions respecting individual assets shall not be evaluated in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.
A.R.S. § 14-10902(B)The trustee also has a duty to verify facts relevant to investment decisions. This means doing homework, not just relying on assumptions. And the statute makes clear that no type of investment is automatically off-limits. Stocks, bonds, real estate, closely held businesses, and alternative investments are all permissible if they fit the trust's needs.
