NY Est Pow & Trusts L § 11-2.3 (2021)
2021 New York Laws EPT - Estates, Powers and Trusts Article 11 - Fiduciary: Powers, Duties and Limitations; Actions by or Against in Representative or Individual Capacities Part 2 - Investments by Fiduciaries: Powers and Duties Relating Thereto 11-2.3 - Prudent Investor Act

§ 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, in light of its investment decisions,  the  consideration  factors  incorporated  in clause  (b)(5)(B),  and the accounting income expected to be produced by applying the rules in article 11-A, that such  an  adjustment  would  be fair and reasonable to all of the beneficiaries.  (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) with respect to  a  charitable  remainder  unitrust  described  in section 664 of the United States internal revenue code of 1986;  (ii)  that  changes  the  amount  payable  to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust's assets;  (iii) 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;  (iv) 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;  (v) 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;  (vi) if  the  trustee  is  a  current  beneficiary  or  a  presumptive remainderman of the trust;  (vii)  if  the  trustee  is not a current beneficiary or a presumptive remainderman, but the adjustment would benefit the trustee  directly  or  indirectly  (which,  however, shall not include the possible effect on a trustee's commission); or  (viii)  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)  An  adjustment otherwise prohibited by items (b)(5)(C)(i) through (viii) may be made if the terms of the trust, by  express  reference  to this  section,  provide  otherwise. If item (b)(5)(C) (iv), (v), (vi) or (vii) applies to a trustee and there  is  more  than  one  trustee,  the trustee  or  trustees  to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee  or trustees is prohibited by the terms of the trust. If there is no trustee qualified  to  make the adjustment, it may be made if so directed by the court upon application of the trustee or of an interested party.  (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).  (G)  Any  exercise  of  the  power  to adjust under this subparagraph, whether from income to principal or  from  principal  to  income,  shall constitute  a  re-characterization of the transferred amount from income to principal or from principal to  income,  as  the  case  may  be,  for purposes  of  calculating  commissions under article twenty-three of the surrogate's  court  procedure  act  and,   for   such   purposes,   such re-characterization shall be deemed to take effect on the date that such transfer  from  income  to principal or from principal to income, as the case may be, is made on a trust's records.  (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, but does not include an institutional fund as defined in section 551  of the not-for-profit corporation law;  (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.