Pennsylvania law used to be governed by the Prudent Man Rule. Under that law, if you were a trustee it was easy to comply and you had to really mess the investments up to be liable to beneficiaries. However, today, under the Pennsylvania Prudent Investor Rule the fiduciary (trustee or trustees) has specific duties to prudently invest according to the law, and to protect the trust beneficiaries based on thier needs, the trust document, and the law. Pennsylvania trustees must exercise reasonable care, skill and caution in investing and managing the trust's assets and to invest according to modern portfolio theory. If you fail, as trustee, to follow the duties or fail to exercise reasonable care, skill, or caution you may be surcharged or be held personally liable for the actions you took.
So how do you protect yourself? Well, unless you are a skilled and professional investor, you might want to delegate your investment of trust assets to a professional. In that case,you will not be held personally liable provided that you initially used prudence and due diligence in selecting the advisor, developing an investment plan, and monitoring his or her performance.
You can also limit your liability by following the notice provisions under the Pennsylvania Uniform Trust Act. If this sounds too difficult you might want to consider whether or not you should act as a trustee or whether you should hire a professional trustee to provide these services. Many individual trustees fail to follow these rules at their own peril. And, even if you wish to act as a trustee, consider having a consultation with legal counsel to make sure that you get off on the right foot and start following the trustee rules and laws from the beginning of the trust administration.
See all ten of our articles on How To Avoid The Most Common Mistakes Trustees Make:
Avoiding Trustee Mistakes No. 1: Trustees Failing To Understand The Trust Language
Avoiding Trustee Mistakes No. 2: Trustees In Trouble Making Early Distributions
Avoiding Trustee Mistakes No. 3: Trustees Failing To Follow The Prudent Investor Rule
Avoiding Trustee Mistakes No. 4: Trustees Failing To Follow The Uniform Trust Act
Avoiding Trustee Mistakes No. 5: Trustees Failing To Follow The Principle And Income Act
Avoiding Trustee Mistakes No. 6: Trustees Failing To Communicate Properly
Avoiding Trustee Mistakes No. 7: Failing To Properly Reform, Amend, Or Terminate
Avoiding Trustee Mistakes No. 8: Failing To File Tax Returns Or To Seek Professional Assistance
Avoiding Trustee Mistakes No. 9: Failing To Understand The Role Of Multiple Trustees
Avoiding Trustee Mistakes No. 10: Trustees Failing To Do The Job
David M. Frees III
Call David Frees for a trustee consultation to avoid liability as a trustee of a Pennsylvania trust. We have offices in Malvern, Phoenixville, and West Chester and we serve the Main Line, Exton, Chester County and surrounding counties.