1997 Regular Session
To: Judiciary A
By: Representative Perry
House Bill 1463
AN ACT TO ENACT THE MISSISSIPPI UNIFORM PRUDENT INVESTOR ACT; TO PROVIDE A GUIDELINE OR RULE BY WHICH A TRUSTEE WHO INVESTS AND MANAGES TRUST ASSETS FULFILLS HIS DUTY TO THE BENEFICIARIES OF THE TRUST; TO PROVIDE THAT THE PRUDENT INVESTOR RULE MAY BE ALTERED BY THE PROVISIONS OF A TRUST; TO PROVIDE THAT A TRUSTEE IS NOT LIABLE TO A BENEFICIARY WHEN ACTING IN RELIANCE ON THE PROVISIONS OF THE TRUST; TO PROVIDE A STANDARD OF CARE IN MANAGING TRUST ASSETS, INCLUDING STANDARDS FOR PORTFOLIO STRATEGIES AND RISK AND RETURN OBJECTIVES; TO REQUIRE A TRUSTEE TO DIVERSIFY THE INVESTMENTS OF THE TRUST IN MOST CASES; TO SET FORTH DUTIES OF THE TRUSTEE AT THE INCEPTION OF THE TRUSTEESHIP; TO PROVIDE THAT A TRUSTEE ACT SOLELY IN THE INTEREST OF THE BENEFICIARIES, AND WITH IMPARTIALITY IF A TRUST HAS TWO OR MORE BENEFICIARIES; TO PROVIDE THAT A TRUSTEE MAY INCUR ONLY APPROPRIATE AND REASONABLE COSTS IN MANAGING THE ASSETS; TO ALLOW A TRUSTEE TO DELEGATE INVESTMENT AND MANAGEMENT FUNCTIONS IF REASONABLE CARE, SKILL AND CAUTION ARE EXERCISED; TO SPECIFY CERTAIN LANGUAGE THAT WILL INVOKE THE STANDARD OF THE ACT; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. Prudent Investor Rule. (1) Except as otherwise provided in subsection (2), a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in this act.
(2) The prudent investor rule, a default rule, may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust.
SECTION 2. Standard of care; portfolio strategy; risk and return objectives. (1) 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.
(2) A trustee's investment and management decisions respecting individual assets 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.
(3) Among circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries:
(a) General economic conditions;
(b) The possible effect of inflation or deflation;
(c) The expected tax consequences of investment decisions or strategies;
(d) The role that each investment or course of action plays within the overall trust portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property and real property;
(e) The expected total return from income and the appreciation of capital;
(f) Other resources of the beneficiaries;
(g) Needs for liquidity, regularity of income and preservation or appreciation of capital; and
(h) An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.
(4) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.
(5) A trustee may invest in any kind of property or type of investment consistent with the standards of this act.
(6) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.
SECTION 3. Diversification. A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.
SECTION 4. Duties at inception of trusteeship. 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 act.
SECTION 5. Loyalty. A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries.
SECTION 6. Impartiality. If a trust has two or more beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.
SECTION 7. Investment costs. In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.
SECTION 8. Reviewing compliance. 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.
SECTION 9. Delegation of investment and management functions. (1) A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill and caution in:
(a) Selecting an agent;
(b) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and
(c) Periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation.
(2) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with the terms of the delegation.
(3) A trustee who complies with the requirements of subsection (1) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
(4) 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.
SECTION 10. Language invoking standard of act. 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 act: "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."
SECTION 11. Application to existing trusts. This act applies to trusts existing on and created after July 1, 1997. As applied to trusts existing on its effective date, this act governs only decisions or actions occurring after that date.
SECTION 12. Uniformity of application and construction. This act shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this act among the states enacting it.
SECTION 13. Short title. This act may be cited as the "Mississippi Uniform Prudent Investor Act."
SECTION 14. Severability. If any provision of this act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this act which can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.
SECTION 15. This act shall take effect and be in force from and after July 1, 1997.