A trust has to be managed by someone, so the people who fund a trust do their best to pick the best person or entity for the job – and it’s a big job. There are lots of decisions that have to be made, including when, where and how to invest those funds so that the trust grows and continues to serve its function.
What happens, however, if a trustee makes a bad call? No investment is entirely without some risk, but some folks are more “risk tolerant” than others.
The Prudent Investor Act controls the trustee’s liability
A trustee in this state has a duty to comply with the Ohio Uniform Prudent Investor Act when it comes to the investments they make on behalf of the trust and its beneficiaries.
In general, that means that a trustee is not liable for a bad investment as long as they are reasonably careful and do a certain amount of due diligence when investigating a potential investment. Specifically, that means they need to consider:
- The general economic conditions at the time of their investment
- Any predictable effect that inflation or deflation might have on the investment
- Any potential tax consequences of their investments or investment strategies
- How much of a role a given investment has to the trust as a whole
- What sort of return they can expect on the investment
- Whether the money would be tied up in a way that would leave the beneficiaries of the trust without enough resources
In short, trustees are expected to keep their eyes open for scams and blatantly bad investments. If they invest willy-nilly or don’t look closely enough into an investment to see that it’s a bad deal, they may be held liable for their mistakes.
If you believe that a trustee has mismanaged a trust, you need to be proactive about holding them legally accountable for your losses.