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Session Law

1998

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Chapter 398 AN ACT ESTABLISHING THE MASSACHUSETTS PRUDENT INVESTOR ACT.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:


SECTION 1. The General Laws are hereby amended by inserting after chapter 203B the following chapter:-

CHAPTER 203C. PRUDENT INVESTMENT.

Section 1. This chapter shall be known as and may be cited as the Massachusetts Prudent Investor Act.

Section 2. (a) Except as provided in subsection (b), a trustee who invests and manages trust assets shall owe a duty to the beneficiaries of a trust to comply with the prudent investor rule set forth in this chapter.

(b) The prudent investor rule may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust. A trustee shall not be liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust.

Section 3. (a) A trustee shall invest and manage trust assets as a prudent investor would, considering the purposes, terms, and other circumstances of the trust, including those set forth in subsection (c). In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

(b) A trustee's investment and management decisions respecting individual assets shall be considered in the context of the trust portfolio as a part of an overall investment strategy reasonably suited to the trust.

(c) Among circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries:

(1) general economic conditions;

(2) the possible effect of inflation or deflation;

(3) the expected tax consequences of investment decisions or strategies;

(4) the role that each investment or course of action plays within the overall trust portfolio;

(5) the expected total return from income and the appreciation of capital;

(6) other resources of the beneficiaries;

(7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and

(8) an asset's special relationship or special value, if any, to the purposes of the trust or to one of the beneficiaries.

(d) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.

(e) A trustee may invest in any kind of property or type of investment consistent with the standards of this chapter.

(f) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has such special skills or expertise, shall have a duty to use such special skills or expertise.

Section 4. A trustee shall reasonably diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.

Section 5. Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, and the other circumstances of the trust, and with the requirements of this chapter.

Section 6. A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries.

Section 7. If a trust has two or more beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.

Section 8. In investing and managing trust assets, a trustee shall incur only costs that are appropriate and reasonable in relation to the assets, the purpose of the trust, and the skills of the trustee.

Section 9. Compliance with the prudent investor rule shall be determined in light of the facts and circumstances existing at the time of a trustee's decision or action.

Section 10. (a) A trustee may delegate investment and management functions if it is prudent to do so. A trustee shall exercise reasonable care, skill and caution in:

(1) selecting an agent;

(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and

(3) periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation.

(b) In performing a delegated function, an agent shall owe a duty to the trust to exercise reasonable care to comply with the terms of the delegation.

(c) A trustee who complies with the requirements of subsection (a) shall not be liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.

(d) By accepting the delegation of trust functions from the trustee of a trust that is subject to the laws of the commonwealth, an agent submits to the jurisdiction of the courts of the commonwealth.

Section 11. The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorize any investment or strategy permitted under this chapter and shall not be interpreted to be a restriction, elimination, or other alteration of the prudent investor rule for purposes of subsection (b) of section 2: "investments permissible by law for investment of trust funds", "legal investments", "authorized investments", "using the judgment and care under the circumstances then prevailing that 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, considering the probable income as well as the probable safety of their capital", "prudent man rule", "prudent trustee rule", "prudent person rule", and "prudent investor rule".

SECTION 2. Chapter 215 of the General Laws is hereby amended by inserting after section 30 the following section:-

Section 30A. The chief justice of the probate and family court department shall prescribe a form which shall provide all interested persons of an estate with information regarding the estate administration process as well as a description of their rights and ability to enforce such rights under such process. An individual seeking appointment as an executor, administrator, guardian, conservator or trustee of an estate shall provide such form to all ascertained interested persons at the time such individual seeks assent to such appointment. Anyone seeking appointment to such position shall provide proof, in a manner satisfactory to the court, that said form has been provided to all interested parties or that a reasonable effort to so provide such form has been made. Such proof shall be a condition precedent to the appointment of a person as executor, administrator, guardian, conservator or trustee of an estate. Said form shall contain such information as the chief justice deems necessary to adequately inform said persons and shall include, but not be limited to, the following information:

(1) the name and address of any petitioner, executor, administrator, guardian, conservator or trustee of such estate;

(2) a statement that this notice is being sent to persons who have or may have some interest in the estate;

(3) a description of the court where papers relating to the estate are on file;

(4) requirements under chapter 195 relating to the inventory of estates;

(5) any surety or bond required of the executor or administrator, the potential for waiving such requirement, the interested persons rights with regard to objecting to such waiver, and any rights such interested person has with regard to bringing an action on such bond;

(6) requirements under chapter 206 relating to the rendering of accounts and the settlement and allowance of accounts relative to the estate including any rights of an interested person, and any procedures necessary for an interested person to review or object to such accounts or settlement statements including any fees paid to such executor or administrator; and

(7) a statement describing the legal consequences, including, but not limited to, any rights which may be waived, resulting from the giving of one's assent or consent during the estate administration process.

SECTION 2A. Chapter 182 of the General Laws is hereby amended by inserting after section 2A, as appearing in the 1996 Official Edition, the following section:-

Section 2B. This section shall apply to a trust that is an investment company, as defined in the Investment Company Act of 1940, and that is registered thereunder with the United States Securities and Exchange Commission.

A trustee of a trust who with respect to the trust is not an interested person, as defined in said Investment Company Act of 1940, shall be deemed to be independent and disinterested when making any determination or taking any action as a trustee.

SECTION 3. The provisions of this act shall apply to decisions or actions of a trustee occurring on or after the effective date of this act.

Approved December 4, 1998.

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