VanNess & VanNess, P.A.

The investment mandate: The check and balance in trust management

Pensions are largely a thing of the past. 401(k)s and Social Security are now foundational elements of a solid retirement plan. If you are among those in Florida with significant assets, establishing a trust is another legal tool for protecting wealth and maximizing its value to you and others you might choose.

While 401(k)s and trusts are different in form, they have some similarities. For example, if you have a 401(k), one of the first steps you likely took setting it up was establishing the parameters of expected performance based on your risk tolerance. High risk aversion would suggest more conservative investments. The investment mandate would be the most likely parallel in the context of trusts.

A trust administrator's orders

A trust is that vehicle through which the creator pools cash or assets of value to save on taxes and avoid probate upon that person's death. Asset management depends on the goals of the trust. And a separate trustee manages things according to orders spelled out by the investment mandate.

What options exist?

What follows isn't intended to be a comprehensive list. Establishing proper trust terms depends on your specific situation and can be best determined by working with experienced counsel. That said, here are some options for framing trust investment action:

  • Capital preservation: Investing in the stock market, with all its volatility, probably would not be a good idea. Rather, the mandate might dictate depositing these assets into a savings account, money market accounts or certificates of deposit.
  • Long-term growth: The underlying desire with this guidance might be assuring earnings over the long haul; perhaps for a period of 10 years. Stocks might be OK, as long as the investments deliver appreciation.
  • Income investment: If the expectation is that the trust will provide living income for the beneficiary, the focus of the mandate might be on long-term investments that deliver ongoing passive income. It might involve investing in rental properties or a business with a long history of delivering dependable dividends on stock.
  • Speculative investment: This might be appropriate if the funds in the trust aren't needed for anything specific. For the beneficiary, it might be viewed as money that can be used to take advantage of intelligent investment opportunities that yield great returns.

The thing to remember is that your trust investment mandate should reflect your values and goals.

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