Article 2.5. Uniform Prudent Investor Act of California Probate Code >> Division 9. >> Part 4. >> Chapter 1. >> Article 2.5.

This article, together with subdivision (a) of Section 16002 and Section 16003, constitutes the prudent investor rule and may be cited as the Uniform Prudent Investor Act.

(a) Except as provided in subdivision (b), a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule.
  (b) The settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument. A trustee is not liable to a beneficiary for the trustee's good faith reliance on these express provisions.

(a) 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.
  (b) A trustee's investment and management decisions respecting individual assets and courses of action must be evaluated not 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.
  (c) Among circumstances that are appropriate to consider in investing and managing trust assets are the following, to the extent relevant to the trust or its beneficiaries:
  (1) General economic conditions.
  (2) The possible effect of inflation or deflation.
  (3) The expected tax consequences of investment decisions or strategies.
  (4) The role that each investment or course of action plays within the overall trust portfolio.
  (5) The expected total return from income and the appreciation of capital.
  (6) Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries.
  (7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.
  (8) An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.
  (d) A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of trust assets.
  (e) A trustee may invest in any kind of property or type of investment or engage in any course of action or investment strategy consistent with the standards of this chapter.

In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, overall investment strategy, purposes, and other circumstances of the trust.

Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight.

(a) A trustee may delegate investment and management functions as prudent under the circumstances. The trustee shall exercise prudence in the following:
  (1) Selecting an agent.
  (2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust.
  (3) Periodically reviewing the agent's overall performance and compliance with the terms of the delegation.
  (b) In performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation.
  (c) Except as otherwise provided in Section 16401, a trustee who complies with the requirements of subdivision (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
  (d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state.

The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment or strategy permitted under this chapter: "investments permissible by law for investment of trust funds," "legal investments," "authorized investments," "using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital," "prudent man rule," "prudent trustee rule," "prudent person rule," and "prudent investor rule."

This article applies to trusts existing on and created after its effective date. As applied to trusts existing on its effective date, this article governs only decisions or actions occurring after that date.