Estate planning isn’t just about what happens *after* you’re gone; it’s about controlling your assets—and how they’re managed—while you’re still here, even if you become incapacitated. This extends to the investment strategies within a trust, and the question of setting boundaries on those investments is vital for many clients. At Moreno Valley Probate Law, located at
23328 Olive Wood Plaza Dr suite h, Moreno Valley, CA 92553, we help families navigate these complexities, ensuring their wishes are respected and their assets are protected.
What Happens If I Don’t Specify Investment Limits?
Without clear directives, a trustee has broad discretion under the California Prudent Investor Act. While this act requires them to act with reasonable care, skill, and caution, it doesn’t inherently limit how aggressively or conservatively they invest. They might, for example, heavily favor a particular sector they believe in, potentially exposing the trust—and your beneficiaries—to undue risk. A recent case we handled involved a trust where the trustee, believing in tech stocks, invested nearly 80% of the trust assets in that single sector. A market downturn severely impacted the trust’s value, and the beneficiaries were understandably upset. The trustee acted within the legal bounds of the Prudent Investor Act, but failed to consider the overall risk profile appropriate for the beneficiaries and their long-term needs. It’s a stark reminder that good intentions aren’t enough; specific guidelines are often crucial. According to a study by Cerulli Associates, over 60% of investors express concern about the potential for excessive risk-taking by trustees.
How Can I Set Asset Allocation Limits in My Trust?
You can, and often should, specify maximum percentages for each asset class – stocks, bonds, real estate, alternative investments, and so on. For instance, you might dictate that no more than 60% of the trust assets can be invested in stocks, 30% in bonds, and 10% in real estate. These percentages can be tailored to your risk tolerance, investment goals, and the time horizon of the beneficiaries. Moreover, you can include provisions for rebalancing – regularly adjusting the asset allocation to maintain the desired percentages. The California Prudent Investor Act doesn’t prevent a trustee from adhering to these guidelines, as long as they still act prudently overall. We recently helped a client, David, who had a strong conviction about ethical investing. He wanted to ensure his trust assets were aligned with his values, so we included specific provisions restricting investments in companies involved in certain industries. It provided him with peace of mind knowing his wishes would be respected, even after he was gone.
What About Different Beneficiaries with Different Risk Tolerances?
This is a common challenge, particularly in blended families or situations where beneficiaries have vastly different financial situations and goals. You can address this by creating separate subtrusts for each beneficiary, each with its own tailored asset allocation strategy. This allows you to accommodate different risk tolerances and investment horizons within a single trust document. Consider the case of Sarah, who wanted to provide for both her adult children. One child was financially secure and comfortable with risk, while the other was starting a family and needed a more conservative approach. We created two subtrusts, each with its own asset allocation strategy designed to meet the specific needs of each child. Remember that California law stipulates that all assets acquired during a marriage are considered community property, owned 50/50, and benefit from a “double step-up” in basis for the surviving spouse, offering significant tax advantages. Formal probate is necessary for estates exceeding $184,500, with statutory fees for executors and attorneys that can be costly.
Can I Include “Do Not Invest In” Lists?
Yes, absolutely. You can specifically prohibit investments in certain industries, companies, or types of assets. This is particularly relevant if you have strong ethical or religious beliefs, or if you simply want to avoid investments you deem too risky. However, it’s important to strike a balance between expressing your preferences and unduly restricting the trustee’s ability to generate returns. A “do not invest in” list that’s too restrictive could hinder the trust’s performance. For example, if you prohibit all investments in technology stocks, you might miss out on significant growth opportunities. It’s crucial to work with an experienced estate planning attorney to craft provisions that are both clear and reasonable. If you’re unsure about the best approach, we can help you navigate these complexities and create a trust document that reflects your wishes and protects your beneficiaries. If no will exists, the surviving spouse inherits all community property, while separate property is divided between the spouse and relatives based on a set formula.
At Moreno Valley Probate Law, Steven F. Bliss ESQ. at (951) 363-4949 can guide you through the intricacies of estate planning and trust administration, ensuring your assets are managed responsibly and your wishes are respected. Don’t leave the future to chance; proactive planning is the key to securing a lasting legacy.
Ready to take control of your financial future? Contact us today for a consultation and let us help you create a comprehensive estate plan tailored to your unique needs.