Illinois Statutes Chapter 760. Trusts and Fiduciaries § 5/5.Investments

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§ 5.  Investments.  (a) Prudent Investor Rule.  A trustee administering a trust has a duty to invest and manage the trust assets as follows:

(1) The trustee has a duty to invest and manage trust assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust.  This standard requires the exercise of reasonable care, skill, and caution and is to be applied to investments not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy that should incorporate risk and return objectives reasonably suitable to the trust.

(2) No specific investment or course of action is, taken alone, prudent or imprudent.  The trustee may invest in every kind of property and type of investment, subject to this Section.  The trustee's investment decisions and actions are to be judged in terms of the trustee's reasonable business judgment regarding the anticipated effect on the trust portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action.  The prudent investor rule is a test of conduct and not of resulting performance.

(3) The trustee has a duty to diversify the investments of the trust unless, under the circumstances, the trustee reasonably believes it is in the interests of the beneficiaries and furthers the purposes of the trust not to diversify.

(4) The trustee has a duty, within a reasonable time after the acceptance of the trusteeship, to review trust assets and to make and implement decisions concerning the retention and disposition of original pre-existing investments in order to conform to the provisions of this Section.  The trustee's decision to retain or dispose of an asset may properly be influenced by the asset's special relationship or value to the purposes of the trust or to some or all of the beneficiaries, consistent with the trustee's duty of impartiality.

(5) The trustee has a duty to pursue an investment strategy that considers both the reasonable production of income and safety of capital, consistent with the trustee's duty of impartiality and the purposes of the trust.  Whether investments are underproductive or overproductive of income shall be judged by the portfolio as a whole and not as to any particular asset.

(6) The circumstances that the trustee may consider in making investment decisions include, without limitation, the general economic conditions, the possible effect of inflation, the expected tax consequences of investment decisions or strategies, the role each investment or course of action plays within the overall portfolio, the expected total return (including both income yield and appreciation of capital), and the duty to incur only reasonable and appropriate costs.  The trustee may but need not consider related trusts and the assets of beneficiaries when making investment decisions.

(b) The provisions of this Section may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument.  The trustee is not liable to a beneficiary for the trustee's reasonable and good faith reliance on those express provisions.

(c) Nothing in this Section abrogates or restricts the power of an appropriate court in proper cases (i) to direct or permit the trustee to deviate from the terms of the trust instrument or (ii) to direct or permit the trustee to take, or to restrain the trustee from taking, any action regarding the making or retention of investments.

(d) The following terms or comparable language in the investment powers and related provisions of a trust instrument, unless otherwise limited or modified by that instrument, shall be construed as authorizing any investment or strategy permitted under this Section:  “investments permissible by law for investment of trust funds”, “legal investments”, “authorized investments”, “using the judgment and care under the circumstances then prevailing that men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to the 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”, and “prudent person rule”.

(e) On and after the effective date of this amendatory Act of 1991, this Section applies to all existing and future trusts, but only as to actions or inactions occurring after that effective date.

Cite this article: - Illinois Statutes Chapter 760. Trusts and Fiduciaries § 5/5.Investments - last updated January 01, 2019 |

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