The trial court held that the trustee of a perpetual charitable trust had breached the duty of prudence by investing the fund solely in bonds and awarded damages based on what the portfolio would have been worth had the trustee followed specific investment advice it had sought but ignored.
As reported by the Wills, Trusts & Estates Prof Blog in "New Case: The Woodward School for Girls v. City of Quincy," a recent case in Massachusetts held that a trustee who only invests the trust assets in bonds is liable to the trust for loss of trust principle as a result of the trustee not properly taking inflation into account.
In this case it appears the trustee sought investment advice, but ignored that advice. If the trustee had followed the advice, then the trust would have more gains than were realized by the trustee’s insistence on only investing in bonds.
A trustee is required by law to act as a reasonably prudent investor would. Accordingly, the court in this Massachusetts case determined that the trustee was not acting in a prudent matter. Consequently, the trustee will be responsible to pay damages for difference between what the trust actually earned and what it would have earned had the trustee invested as a reasonably prudent investor.
Trustees who are not “professional corporate trustees” face personal risk if they follow their own investment strategies. Non-professional trustees should consider getting advice from lawyers and financial experts about the best way to invest trust assets.
Reference: Wills, Trusts & Estates Prof Blog (August 18, 2014) "New Case: The Woodward School for Girls v. City of Quincy"