Source: https://secure.ssa.gov/apps10/poms.nsf/lnx/1507240053
Timestamp: 2018-01-17 23:49:42
Document Index: 88781963

Matched Legal Cases: ['§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11', '§ 11']

SSA - POMS: PR 07240.053 - Washington - 02/09/2009
PR 07240.053 Washington
The prudent investor rule is found at R.C.W.A. § 11.100.020.
Washington law is silent on this issue. However, there is an assumption that the prudent investor be impartial and with no conflict of interest. To the extent that a family relationship may be a barrier to such impartiality and may create a conflict of interest, one may need to scrutinize these funds more carefully. The standard, however, appears to be identical.
Washington's Trust Act provides as follows:
(1) A fiduciary is authorized to acquire and retain every kind of property. In acquiring, investing, reinvesting, exchanging, selling and managing property for the benefit of another, a fiduciary, in determining the prudence of a particular investment, shall give due consideration to the role that the proposed investment or investment course of action plays within the overall portfolio of assets. In applying such total asset management approach, a fiduciary shall exercise the judgment and care under the circumstances then prevailing, which 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, and if the fiduciary has special skills or is named trustee on the basis of representations of special skills or expertise, the fiduciary is under a duty to use those skills.
(2) Except as may be provided to the contrary in the instrument, the following are among the factors that should be considered by a fiduciary in applying this total asset management approach:
(3) Within the limitations of the foregoing standard, and subject to any express provisions or limitations contained in any particular trust instrument, a fiduciary is authorized to acquire and retain every kind of property, real, personal, or mixed, and every kind of investment specifically including but not by way of limitation, debentures and other corporate obligations, and stocks, preferred or common, which persons of prudence, discretion, and intelligence acquire for their own account. R.C.W.A. § 11.100.020.
Other provisions of Washington law clarify the duties imposed on fiduciaries under this rule. Interestingly, Washington specifically provides for certain types of investments by fiduciaries. In Washington, for example, a fiduciary is authorized to invest in new, unproven, untried, or other enterprises with a potential for significant growth whether producing a current return, either by investing directly therein or by investing as a limited partner or otherwise in one or more commingled funds which in turn invest primarily in such enterprises. The aggregate amount of investments held by a fiduciary under the authority of this section valued at cost shall not exceed ten percent of the net fair market value of the trust corpus. See R.C.W.A. § 11.100.023. Also, any fiduciary may hold and retain any real or personal property received into or acquired by the trust from any source, and is not liable for any loss incurred with respect to any such investment, “if that investment was permitted when received or when the investment was made by the fiduciary, and if the fiduciary exercises due care and prudence in the disposition or retention of any such investment” R.C.W.A. § 11.100.060.
A duty against self-dealing is codified in Washington. See R.C.W.A. § 11.100.090. A Washington fiduciary is specifically authorized by law to use trust funds to acquire life insurance upon the life of any beneficiary or upon the life of another in whose life such beneficiary has an insurable interest. See R.C.W.A. § 11.100.120.
Washington also provides for the duty to the beneficiaries, the duty of impartiality and the duty to diversify in terms substantially identical to those of the Uniform Prudent Investor Act. See R.C.W.A. §§ 11.100.045, 11.100.047.
Finally, and most importantly for our purposes, fiduciaries in Washington are prohibited from entering into certain “significant nonroutine transactions” without providing written notice to the trustor. “Significant nonroutine transactions” include:
(d) The sale of shares of stock in any corporation where the stock to be sold constitutes a controlling interest, or would cause the trust to no longer own a controlling interest, in the corporation. R.C.W.A. § 11.100.140.
The best discussion of the Prudent Investor Rule in Washington jurisprudence has been in the case of Estate of Cooper. According to that court, overall trust performance is a factor in evaluating the performance of the trustee, but it is not by itself controlling. The court's focus in applying the Prudent Investor standard is conduct, not the end result. The prudent investor standard is necessarily flexible. Two principles, the court noted, can be observed: First, whether an investment is prudent or not is a question of fact. Second, the prudent investor standard requires that the fiduciary maintain a balance between the rights of income beneficiaries with those of the remainderman. Washington's version of the rule also requires that the trustee consider income as well as the safety of the capital and the requirements of the beneficiaries. The focus is on the trustee's performance, not simply on the net gain or loss to the trust corpus. See Estate of Cooper, 81 Wash. App. 79, 913 P.2d 393 (Wash. App. 1996), citing Harvard College v. Amory , 26 Mass. (9 Pick.) 446, 460-61 (1830); In re Lincoln First Bank, N.A. , 165 Misc.2d 743, 630 N.Y.S.2d 472 (Sup.Ct.1995).
In Allard v. Pacific National Bank, 99 Wash.2d 394, 663 P.2d 104 (Wash. 1983), the Washington Supreme Court discussed a trustee's duty to inform a beneficiary of all material facts in connection with a nonroutine transaction. According to the Allard court, the trustee's fiduciary duty includes the responsibility to inform the beneficiaries fully of all facts which would aid them in protecting their interests. That the settlor has created a trust, and thus required the beneficiaries to enjoy their property interests indirectly, does not imply the beneficiaries are to be kept in ignorance of the trust, the nature of the trust property, and the details of its administration. If the beneficiaries are able to hold the trustee to proper standards of care and honesty and procure the benefits to which they are entitled, they must know of what the trust property consists and how it is being managed. Thus, the trustee must inform beneficiaries of all material facts in connection with a nonroutine transaction which significantly affects the trust estate and the interests of the beneficiaries prior to the transaction taking place. See Allard v. Pacific National Bank, 99 Wash.2d 394, 404-405, 663 P.2d 104, 110 (Wash. 1983). A trustee must determine the best possible price for trust property either by obtaining an independent appraisal of the property or by "testing the market" to determine what a willing buyer would pay. Id. at 406.
With regard to the duty to diversify investments, the Washington rule is that a trustee has a general obligation to diversify, unless there is either (1) an express provision by the settler relieving the trustee of the duty to diversify, or (2) the circumstances dictate that it is not prudent to diversify. See