Delegation of Investment Decisions by Trustees

Kent H. McMahan (partner, Trust and Estates Group, Houston office of Fulbright & Jaworski LLP) has recently published his article entitled The Texas Uniform Prudent Investor Act and Delegation of Investment Decisions – Are the Provisions Workable to Achieve Liability Relief for the Delegating Trustee?, Real Est., Prob., & Tr. L. Rep., Oct. 2005, at 41.

Here is the summary of Mr. McMahan’s article:

Prior to the enactment of § 113.060 in 1999 in Texas, in the absence of an explicit grant of authority in a will or trust instrument permitting delegation, the fiduciary responsibilities of a Trustee were not delegable. With the enactment of § 113.060 in 1999, Trustees were permitted to delegate investment decisions to an investment agent. Delegation is now also allowed under§ 9 of the Uniform Prudent Investor Act (“Uniform Act”). This section is designed to strike the appropriate balance between the advantages and the hazards of delegation.4 The Uniform Act states that the Trustee is required to exercise reasonable care, skill and caution in the selection of the agent, the scope of the delegation to the agent and periodically reviewing the agent’s performance Similar legislation was enacted in 2004 in Texas under § 117.011, in the Texas Uniform Act, allowing the Trustee to delegate any investment or management decision provided that a prudent Trustee of similar skills could properly delegate under the same circumstances. Both the Uniform Act and § 117.011 in the Texas Uniform Act make the agent responsible to the trust so that the beneficiaries of the trust can, therefore, rely upon the Trustee to enforce the terms of the delegation. If done properly, § 117.011, like the Uniform Act, limits the Trustee’s liability to the beneficiary if certain acts discussed within are followed.