2006 New York Code - Powers And Duties Relating Thereto

 
  § 11-2.3 Prudent investor act
    (a) Prudent investor rule.
    A trustee has a duty to invest and manage property held in a fiduciary
  capacity  in  accordance  with  the prudent investor standard defined by
  this section, except as otherwise provided  by  the  express  terms  and
  provisions of a governing instrument within the limitations set forth by
  section  11-1.7  of  this  chapter.  This  section  shall  apply  to any
  investment made or held on or  after  January  first,  nineteen  hundred
  ninety-five by a trustee.
    (b) Prudent investor standard.
    (1)  The  prudent  investor  rule  requires a standard of conduct, not
  outcome or performance. Compliance with the  prudent  investor  rule  is
  determined in light of facts and circumstances prevailing at the time of
  the  decision  or  action  of  a  trustee.  A trustee is not liable to a
  beneficiary  to  the  extent  that  the  trustee  acted  in  substantial
  compliance  with the prudent investor standard or in reasonable reliance
  on the express terms and provisions of the governing instrument.
    (2) A trustee shall exercise reasonable care,  skill  and  caution  to
  make  and  implement  investment  and  management decisions as a prudent
  investor would  for  the  entire  portfolio,  taking  into  account  the
  purposes and terms and provisions of the governing instrument.
    (3) The prudent investor standard requires a trustee:
    (A)  to pursue an overall investment strategy to enable the trustee to
  make appropriate present and future distributions to or for the  benefit
  of  the beneficiaries under the governing instrument, in accordance with
  risk and return objectives reasonably suited to the entire portfolio;
    (B) to consider, to the extent relevant to the decision or action, the
  size of  the  portfolio,  the  nature  and  estimated  duration  of  the
  fiduciary  relationship,  the liquidity and distribution requirements of
  the governing instrument,  general  economic  conditions,  the  possible
  effect  of  inflation  or  deflation,  the  expected tax consequences of
  investment decisions or strategies and of distributions  of  income  and
  principal,  the  role  that  each  investment  or course of action plays
  within the overall portfolio, the expected total return of the portfolio
  (including both income and appreciation of capital), and  the  needs  of
  beneficiaries  (to  the  extent  reasonably  known  to  the trustee) for
  present and future distributions authorized or required by the governing
  instrument;
    (C) to diversify assets unless the trustee reasonably determines  that
  it  is  in  the  interests of the beneficiaries not to diversify, taking
  into account the purposes and terms  and  provisions  of  the  governing
  instrument; and
    (D)  within  a  reasonable  time  after  the creation of the fiduciary
  relationship, to determine whether  to  retain  or  dispose  of  initial
  assets.
    (4) The prudent investor standard authorizes a trustee:
    (A)   to  invest  in  any  type  of  investment  consistent  with  the
  requirements of  this  paragraph,  since  no  particular  investment  is
  inherently  prudent  or  imprudent  for purposes of the prudent investor
  standard;
    (B)  to  consider  related  trusts,  the  income  and   resources   of
  beneficiaries to the extent reasonably known to the trustee, and also an
  asset's   special   relationship   or  value  to  some  or  all  of  the
  beneficiaries if consistent with the trustee's duty of impartiality;
    (C) to delegate investment and management functions if consistent with
  the duty to exercise skill, including special investment skills; and
    (D) to incur costs  only  to  the  extent  they  are  appropriate  and
  reasonable  in relation to the purposes of the governing instrument, the
  assets held by the trustee and the skills of the trustee.
    (5) Trustee's power to adjust.
    (A)  Where the rules in article 11-A apply to a trust and the terms of
  the trust describe the amount that may  or  must  be  distributed  to  a
  beneficiary  by  referring  to  the trust's income, the prudent investor
  standard also authorizes the trustee to  adjust  between  principal  and
  income  to  the  extent  the  trustee  considers advisable to enable the
  trustee  to  make  appropriate  present  and  future  distributions   in
  accordance  with  clause  (b)(3)(A)  if  the  trustee  determines, after
  applying the rules in article 11-A, that such  an  adjustment  would  be
  fair  and  reasonable  to  all  of  the  beneficiaries,  so that current
  beneficiaries may be  given  such  use  of  the  trust  property  as  is
  consistent with preservation of its value.
    (B)  In  deciding  whether  and  to  what extent to exercise the power
  conferred by clause (b)(5)(A), a trustee may consider,  in  addition  to
  the  factors  stated  in  clauses (b)(3)(B) and (b)(4)(B), the following
  factors to the extent relevant:
    (i)  the  intent  of  the  settlor,  as  expressed  in  the  governing
  instrument;  the  assets  held  in  the  trust; the extent to which they
  consist of financial assets,  interests  in  closely  held  enterprises,
  tangible  and intangible personal property, or real property; the extent
  to which an asset is used by a beneficiary; and  whether  an  asset  was
  purchased by the trustee or received from the settlor;
    (ii)  the  net  amount  allocated to income under article 11-A and the
  increase or decrease in the value of the  principal  assets,  which  the
  trustee  may  estimate  as  to  assets  for  which market values are not
  readily available; and
    (iii) whether and to what extent the  terms  of  the  trust  give  the
  trustee  the  power to invade principal or accumulate income or prohibit
  the trustee from invading principal  or  accumulating  income,  and  the
  extent  to  which the trustee has exercised a power from time to time to
  invade principal or accumulate income.
    (C) A trustee may not make an adjustment:
    (i) that diminishes the income interest in a trust that  requires  all
  of  the income to be paid at least annually to a spouse and for which an
  estate tax or gift tax marital deduction is claimed;
    (ii) that reduces the actuarial value of  the  income  interest  in  a
  trust  to  which  a person transfers property with the intent to qualify
  for a gift tax exclusion;
    (iii) that changes the amount payable to  a  beneficiary  as  a  fixed
  annuity or a fixed fraction of the value of the trust's assets;
    (iv)  from  any  amount  that  is permanently set aside for charitable
  purposes under a will  or  the  terms  of  a  trust  unless  the  income
  therefrom is also permanently devoted to charitable purposes;
    (v) if possessing or exercising the power to make an adjustment causes
  an individual to be treated as the owner of all or part of the trust for
  income  tax  purposes,  and  the  individual would not be treated as the
  owner if the trustee did not possess the power to make an adjustment;
    (vi) if possessing or exercising  the  power  to  make  an  adjustment
  causes  all  or  part  of the trust assets to be included for estate tax
  purposes in the estate of an individual who has the power  to  remove  a
  trustee  or  appoint  a  trustee,  or  both, and the assets would not be
  included in the estate of the individual if the trustee did not  possess
  the power to make an adjustment;
    (vii)  if  the  trustee  is  a  current  beneficiary  or a presumptive
  remainderman of the trust;
    (viii) if the trustee is not a current beneficiary  or  a  presumptive
  remainderman,  but  the adjustment would benefit the trustee directly or
  indirectly; or
    (ix)  if  the  trust  is  an irrevocable lifetime trust which provides
  income to be paid for life to the grantor, and possessing or  exercising
  the  power  to make an adjustment would cause any public benefit program
  to consider the adjusted principal or income to be an available resource
  or available income and the principal or income or both  would  in  each
  case not be considered as an available resource or income if the trustee
  did not possess the power to make an adjustment.
    (D)  If item (b)(5)(C)(v), (vi), (vii), or (viii) applies to a trustee
  and there is more than one trustee, a co-trustee to whom  the  provision
  does  not apply may make the adjustment unless the exercise of the power
  by the remaining trustee or trustees is not permitted by  the  terms  of
  the trust.
    (E)  A  trustee  may  release  the  entire  power  conferred by clause
  (b)(5)(A) or may release  only  the  power  to  adjust  from  income  to
  principal or the power to adjust from principal to income if the trustee
  is uncertain about whether possessing or exercising the power will cause
  a result described in items (b)(5)(C)(i) through (vi) or (b)(5)(C)(viii)
  or  if  the  trustee  determines that possessing or exercising the power
  will or may deprive the trust of a tax benefit or impose  a  tax  burden
  not described in clause (b)(5)(C). The release may be permanent or for a
  specified  period,  including  a  period  measured  by  the  life  of an
  individual.
    (F) Terms of a trust that limit the power of  a  trustee  to  make  an
  adjustment between principal and income are not contrary to this section
  unless  it  is  clear  from  the  terms  of the trust that the terms are
  intended to deny the trustee the power of adjustment conferred by clause
  (b)(5)(A).
    (6) Special investment skills.
    For a bank, trust company  or  paid  professional  investment  advisor
  (whether  or  not  registered under any federal securities or investment
  law) which serves as a trustee, and any other trustee representing  that
  such  trustee  has  special  investment  skills,  the  exercise of skill
  contemplated by the prudent investor standard shall require the  trustee
  to  exercise  such  diligence  in investing and managing assets as would
  customarily  be  exercised  by  prudent  investors  of  discretion   and
  intelligence having special investment skills.
    (c) Delegation of investment or management functions.
    (1)  Delegation  of  an  investment  or management function requires a
  trustee to exercise care, skill and caution in:
    (A) selecting a delegee suitable to exercise the  delegated  function,
  taking  into  account the nature and value of the assets subject to such
  delegation and the expertise of the delegee;
    (B) establishing the scope and terms of the delegation consistent with
  the purposes of the governing instrument;
    (C) periodically reviewing the delegee's  exercise  of  the  delegated
  function and compliance with the scope and terms of the delegation; and
    (D) controlling the overall cost by reason of the delegation.
    (2)  The  delegee has a duty to the trustee and to the trust to comply
  with the scope and terms of the delegation and to exercise the delegated
  function  with  reasonable  care,  skill  and  caution.   An   attempted
  exoneration  of the delegee from liability for failure to meet such duty
  is contrary to public policy and void.
    (3) By accepting the delegation  of  a  trustee's  function  from  the
  trustee  of  a trust that is subject to the law of New York, the delegee
  submits to the jurisdiction  of  the  courts  of  New  York  even  if  a
  delegation  agreement  provides otherwise, and the delegee may be made a
  party to any  proceeding  in  such  courts  that  places  in  issue  the
  decisions or actions of the delegee.
    (d) Investment in securities of related investment companies.
    A  trustee  holding  funds  for  investment  may  invest  the  same in
  securities of any management type investment company or trust registered
  pursuant to the federal  investment  company  act  of  nineteen  hundred
  forty,  as  amended, notwithstanding that the trustee or an affiliate of
  the trustee acts  as  investment  advisor,  custodian,  transfer  agent,
  registrar,  sponsor,  distributor, manager or provides other services to
  the investment company or trust. Unless  the  will,  lifetime  trust  or
  order appointing the trustee provides otherwise, the trustee shall elect
  annually   either   (i)   to  receive  or  have  its  affiliate  receive
  compensation for providing such services to such investment  company  or
  trust  for  the portion of the trust invested in such investment company
  or trust or (ii) to take annual  corporate  trustees'  commissions  with
  respect to such portion.
    (e) As used in this section:
    (1)  the  term  "trustee" includes a personal representative, trustee,
  guardian, donee of a  power  during  minority,  guardian  under  article
  eighty-one  of  the  mental hygiene law, committee of the property of an
  incompetent person, and conservator of the property of a conservatee;
    (2) the term "trust" includes any fiduciary entity with property owned
  by a trustee as defined in this section;
    (3) the term "governing instrument" includes a court order; and
    (4) the term "portfolio" includes  all  property  of  every  kind  and
  character held by a trustee as defined in this section.