The California Probate Code regulates the conduct of fiduciaries acting as conservators, trustees, personal representatives of probate estates, and agents under powers of attorney. Many fiduciary duties, such as the duties of loyalty and impartiality, and the duty to manage investments prudently, apply to all of these roles. However, the latitude permitted in fulfilling these duties can vary greatly from one fiduciary role to another; this is particularly true regarding investment management.
A trustee’s investment options are governed by the terms of the trust instrument, and by the section of the Probate Code collectively referred to as the Uniform Prudent Investor Act (“UPIA”). Unless the trust provides otherwise, the UPIA controls the trustee’s investment decisions, and requires the trustee to invest trust assets prudently, while considering factors such as the size of the trust, general economic conditions, the need for liquidity, and the financial condition of the beneficiaries. The Probate Code does not specify that certain kinds of investments are uniformly not permissible.
Personal representatives of probate estates, and conservators in conservatorships, are governed by different rules. A personal representative of an estate can only invest estate assets in a few specific kinds of funds and government obligations. The rules applicable to conservators are slightly less restrictive — a conservator can also invest in certain kinds of securities and U.S. Treasury Bonds. In both situations, the fiduciary can seek a court order authorizing other kinds of investments, but the legal standard for authorization is different for probates and conservatorships.
Many investment advisors are unaware of the unique rules applicable to the different fiduciary roles. We generally tell newly appointed fiduciaries that one of their first calls should be to the investment advisor, instructing them not to buy or sell anything without the fiduciary’s instruction. The fiduciary should then evaluate the existing assets and investment strategy, determine the applicable rules, and adjust the investment strategy as appropriate.