As an estate planning attorney in San Diego, I frequently encounter clients wanting their legacies to extend beyond mere financial benefit—they desire positive community impact. The question of whether you can instruct a trustee to prioritize local economic needs when making investment decisions is complex, hinging on the specifics of the trust document and applicable fiduciary duties. While outright *requiring* a trustee to prioritize local investments over maximizing returns can be problematic, carefully drafted trust language can certainly encourage, and even strongly suggest, such considerations. It’s a balancing act between fulfilling the grantor’s wishes and adhering to the trustee’s legal obligations.
What are a Trustee’s Duties When Making Investments?
A trustee’s primary duty is to act in the best interest of the beneficiaries, often interpreted as maximizing financial returns within a prudent level of risk – the “prudent investor rule.” This rule, codified in the Uniform Prudent Investor Act (UPIA) adopted by most states, requires trustees to act with the care, skill, prudence, and diligence that a prudent person acting in a like capacity would use. However, UPIA also allows for consideration of the beneficiaries’ needs, purposes, and interests, and increasingly, societal impact. Approximately 63% of high-net-worth individuals express a desire to align their investments with their values, a figure that is steadily rising. This opens the door to responsible investing, but doesn’t necessarily mandate it. A trustee could face legal challenges if prioritizing local investments demonstrably *reduced* returns without a clear beneficiary preference for such investments.
How Can I Encourage Socially Responsible Investing?
The key lies in clear and specific language within the trust document. Instead of a blanket instruction to “invest locally,” consider phrasing that allows for consideration of local economic needs *alongside* financial considerations. For example, the trust could state: “The trustee is authorized, but not required, to consider investments that promote the economic well-being of the San Diego community, provided such investments are consistent with the trust’s overall investment objectives and risk tolerance.” You can also specify acceptable types of local investments – perhaps community development banks, local businesses with a strong track record, or real estate projects that benefit the area. Remember, a well-drafted trust empowers the trustee to exercise discretion, rather than imposing a rigid mandate. This nuanced approach avoids potential breaches of fiduciary duty while still honoring your wishes.
What Happened When a Client Insisted on Only Local Investments?
I recall a client, old Man Hemlock, a successful local fisherman, who insisted his trust *only* invest in San Diego-based businesses. He envisioned a legacy of supporting the community he’d built his life in. While admirable, the trust document lacked flexibility. The trustee, a family member, struggled to find sufficient, diversified, and prudent investments within San Diego that met the trust’s income requirements. Consequently, the trust’s returns were significantly lower than comparable portfolios, diminishing the benefit to the beneficiaries. The family had to expend considerable legal fees to amend the trust, broadening the investment scope while still allowing for a substantial allocation to local enterprises. It was a painful, and costly, lesson in the importance of balance.
How Did Careful Planning Save Another Family’s Legacy?
Conversely, the Alvarez family approached us with a similar desire to support San Diego’s economy. We crafted a trust that allowed the trustee to allocate up to 30% of the portfolio to local investments, prioritizing those with a proven track record and alignment with the family’s values – sustainable fishing practices and renewable energy. The remaining 70% was diversified across a broad range of asset classes. This approach allowed the trustee to fulfill the family’s wishes while still maintaining a prudent and diversified investment strategy. The trust not only provided substantial benefits to the beneficiaries but also contributed to the economic vitality of the local community. It’s a beautiful example of how thoughtful estate planning can create a legacy that benefits both family and community.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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