Estate Trustees, depending on the terms of the Will, may have a duty to invest estate assets for a significant period of time (such as where there is a spousal trust).  The Will may speak to the powers of the Trustee to invest estate assets.  Depending on the size and complexity of the estate, an Estate Trustee may choose to invest the estate assets with a discretionary manager.

While it is tempting to assume that an Estate Trustee could never be criticized by the beneficiaries of the estate for investing in a professionally managed portfolio, such an assumption would be incorrect.  If the investment advisor is not properly informed with respect to such things as the nature of the trust, the need to generate income and the investment horizon, the trust may suffer and the Estate Trustee will be vulnerable if the beneficiaries seek a passing of accounts. The buck stops with the Estate Trustee.

The Estate Trustee has the authority to invest the estate assets without constant scrutiny by the beneficiaries but it is important to remember that the Estate Trustee is always subject to a duty to be ready, willing and able to account to the beneficiaries.

When done correctly, investment with a discretionary manager is a sensible approach for an Estate Trustee.  The key is to inform the manager of the terms of the Trust and appropriately complete the “Know Your Client” form to manage risk.  The Estate Trustee should consider such things as: the fees charged and the transparency of same, the reputation of the manager, and the experience of the manager investing estate assets.

Once estate assets are invested, the investments should be reviewed regularly.  Typically this means, at a minimum, quarterly. It is important to be alert to changes in the market which may impact the portfolio.  While this is true of anyone invested in equities, the fiduciary duty imposed upon an Estate Trustee inevitably carries a degree of stress.  Investing in guaranteed investments is not an option if there is an expectation of capital appreciation or the enhanced income that many be generated by dividends. 

Quite simply, if a named Estate Trustee is not prepared to accept the stress that comes with the role, he or she should consider renouncing before taking on the duties of investing estate assets.

Thanks for reading.

David Morgan Smith