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92_HB3056 LRB9200640ACtm 1 AN ACT in relation to the investment of trust assets. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 0.01. Short title. This Act may be cited as the 5 Uniform Prudent Investor Act. 6 Section 1. Prudent investor rule. 7 (a) Except as otherwise provided in subsection (b), a 8 trustee who invests and manages trust assets owes a duty to 9 the beneficiaries of the trust to comply with the prudent 10 investor rule set forth in this Act. 11 (b) The prudent investor rule, a default rule, may be 12 expanded, restricted, eliminated, or otherwise altered by the 13 provisions of a trust. A trustee is not liable to a 14 beneficiary to the extent that the trustee acted in 15 reasonable reliance on the provisions of the trust. 16 Section 2. Standard of care; portfolio strategy; risk 17 and return objectives. 18 (a) A trustee shall invest and manage trust assets as a 19 prudent investor would, by considering the purposes, terms, 20 distribution requirements, and other circumstances of the 21 trust. In satisfying this standard, the trustee shall 22 exercise reasonable care, skill, and caution. 23 (b) A trustee's investment and management decisions 24 respecting individual assets must be evaluated not in 25 isolation but in the context of the trust portfolio as a 26 whole and as a part of an overall investment strategy having 27 risk and return objectives reasonably suited to the trust. 28 (c) Among circumstances that a trustee shall consider in 29 investing and managing trust assets are such of the following 30 as are relevant to the trust or its beneficiaries: -2- LRB9200640ACtm 1 (1) general economic conditions; 2 (2) the possible effect of inflation or deflation; 3 (3) the expected tax consequences of investment 4 decisions or strategies; 5 (4) the role that each investment or course of 6 action plays within the overall trust portfolio, which 7 may include financial assets, interests in closely held 8 enterprises, tangible and intangible personal property, 9 and real property; 10 (5) the expected total return from income and the 11 appreciation of capital; 12 (6) other resources of the beneficiaries; 13 (7) needs for liquidity, regularity of income, and 14 preservation or appreciation of capital; and 15 (8) an asset's special relationship or special 16 value, if any, to the purposes of the trust or to one or 17 more of the beneficiaries. 18 (d) A trustee shall make a reasonable effort to verify 19 facts relevant to the investment and management of trust 20 assets. 21 (e) A trustee may invest in any kind of property or type 22 of investment consistent with the standards of this Act. 23 (f) A trustee who has special skills or expertise, or is 24 named trustee in reliance upon the trustee's representation 25 that the trustee has special skills or expertise, has a duty 26 to use those special skills or expertise. 27 Section 3. Diversification. A trustee shall diversify 28 the investments of the trust unless the trustee reasonably 29 determines that, because of special circumstances, the 30 purposes of the trust are better served without diversifying. 31 Section 4. Duties at inception of trusteeship. Within a 32 reasonable time after accepting a trusteeship or receiving -3- LRB9200640ACtm 1 trust assets, a trustee shall review the trust assets and 2 make and implement decisions concerning the retention and 3 disposition of assets, in order to bring the trust portfolio 4 into compliance with the purposes, terms, distribution 5 requirements, and other circumstances of the trust, and with 6 the requirements of this Act. 7 Section 5. Loyalty. A trustee shall invest and manage 8 the trust assets solely in the interest of the beneficiaries. 9 Section 6. Impartiality. If a trust has two or more 10 beneficiaries, the trustee shall act impartially in investing 11 and managing the trust assets, taking into account any 12 differing interests of the beneficiaries. 13 Section 7. Investment costs. In investing and managing 14 trust assets, a trustee may only incur costs that are 15 appropriate and reasonable in relation to the assets, the 16 purposes of the trust, and the skills of the trustee. 17 Section 8. Reviewing compliance. Compliance with the 18 prudent investor rule is determined in light of the facts and 19 circumstances existing at the time of a trustee's decision or 20 action and not by hindsight. 21 Section 9. Delegation of investment and management 22 functions. 23 (a) A trustee may delegate investment and management 24 functions that a prudent trustee of comparable skills could 25 properly delegate under the circumstances. The trustee shall 26 exercise reasonable care, skill, and caution in: 27 (1) selecting an agent; 28 (2) establishing the scope and terms of the 29 delegation, consistent with the purposes and terms of the -4- LRB9200640ACtm 1 trust; and 2 (3) periodically reviewing the agent's actions in 3 order to monitor the agent's performance and compliance 4 with the terms of the delegation. 5 (b) In performing a delegated function, an agent owes a 6 duty to the trust to exercise reasonable care to comply with 7 the terms of the delegation. 8 (c) A trustee who complies with the requirements of 9 subsection (a) is not liable to the beneficiaries or to the 10 trust for the decisions or actions of the agent to whom the 11 function was delegated. 12 (d) By accepting the delegation of a trust function from 13 the trustee of a trust that is subject to the law of this 14 State, an agent submits to the jurisdiction of the courts of 15 this State. 16 Section 10. Language invoking standard of Act. The 17 following terms or comparable language in the provisions of a 18 trust, unless otherwise limited or modified, authorizes any 19 investment or strategy permitted under this Act: "investments 20 permissible by law for investment of trust funds," "legal 21 investments," "authorized investments," "using the judgment 22 and care under the circumstances then prevailing that persons 23 of prudence, discretion, and intelligence exercise in the 24 management of their own affairs, not in regard to speculation 25 but in regard to the permanent disposition of their funds, 26 considering the probable income as well as the probable 27 safety of their capital," "prudent man rule," "prudent 28 trustee rule," "prudent person rule," and "prudent investor 29 rule." 30 Section 11. Application to existing trusts. This Act 31 applies to trusts existing on and created after its effective 32 date. As applied to trusts existing on its effective date, -5- LRB9200640ACtm 1 this Act governs only decisions or actions occurring after 2 that date. 3 Section 12. Uniformity of application and construction. 4 This Act shall be applied and construed to effectuate its 5 general purpose to make uniform the law with respect to the 6 subject of this Act among the States enacting it. 7 Section 13. Short title. (See Section 0.01 for short 8 title.) 9 Section 14. Severability. If any provision of this Act 10 or its application to any person or circumstance is held 11 invalid, the invalidity does not affect other provisions or 12 applications of this Act which can be given effect without 13 the invalid provision or application, and to this end the 14 provisions of this Act are severable. 15 Section 14.1. The Trusts and Trustees Act is amended by 16 changing Sections 5, 5.1, and 5.2 as follows: 17 (760 ILCS 5/5) (from Ch. 17, par. 1675) 18 Sec. 5. Investments.
(a)Prudent Investor Rule. A 19 trustee administering a trust has a duty to invest and manage 20 the trust assets in accordance with the Uniform Prudent 21 Investor Act. as follows:22 (1) The trustee has a duty to invest and manage23 trust assets as a prudent investor would considering the24 purposes, terms, distribution requirements, and other25 circumstances of the trust. This standard requires the26 exercise of reasonable care, skill, and caution and is to27 be applied to investments not in isolation, but in the28 context of the trust portfolio as a whole and as a part29 of an overall investment strategy that should incorporate-6- LRB9200640ACtm 1 risk and return objectives reasonably suitable to the2 trust.3 (2) No specific investment or course of action is,4 taken alone, prudent or imprudent. The trustee may invest5 in every kind of property and type of investment, subject6 to this Section. The trustee's investment decisions and7 actions are to be judged in terms of the trustee's8 reasonable business judgment regarding the anticipated9 effect on the trust portfolio as a whole under the facts10 and circumstances prevailing at the time of the decision11 or action. The prudent investor rule is a test of conduct12 and not of resulting performance.13 (3) The trustee has a duty to diversify the14 investments of the trust unless, under the circumstances,15 the trustee reasonably believes it is in the interests of16 the beneficiaries and furthers the purposes of the trust17 not to diversify.18 (4) The trustee has a duty, within a reasonable19 time after the acceptance of the trusteeship, to review20 trust assets and to make and implement decisions21 concerning the retention and disposition of original22 pre-existing investments in order to conform to the23 provisions of this Section. The trustee's decision to24 retain or dispose of an asset may properly be influenced25 by the asset's special relationship or value to the26 purposes of the trust or to some or all of the27 beneficiaries, consistent with the trustee's duty of28 impartiality.29 (5) The trustee has a duty to pursue an investment30 strategy that considers both the reasonable production of31 income and safety of capital, consistent with the32 trustee's duty of impartiality and the purposes of the33 trust. Whether investments are underproductive or34 overproductive of income shall be judged by the portfolio-7- LRB9200640ACtm 1 as a whole and not as to any particular asset.2 (6) The circumstances that the trustee may consider3 in making investment decisions include, without4 limitation, the general economic conditions, the possible5 effect of inflation, the expected tax consequences of6 investment decisions or strategies, the role each7 investment or course of action plays within the overall8 portfolio, the expected total return (including both9 income yield and appreciation of capital), and the duty10 to incur only reasonable and appropriate costs. The11 trustee may but need not consider related trusts and the12 assets of beneficiaries when making investment decisions.13 (b) The provisions of this Section may be expanded,14 restricted, eliminated, or otherwise altered by express15 provisions of the trust instrument. The trustee is not16 liable to a beneficiary for the trustee's reasonable and good17 faith reliance on those express provisions.18 (c) Nothing in this Section abrogates or restricts the19 power of an appropriate court in proper cases (i) to direct20 or permit the trustee to deviate from the terms of the trust21 instrument or (ii) to direct or permit the trustee to take,22 or to restrain the trustee from taking, any action regarding23 the making or retention of investments.24 (d) The following terms or comparable language in the25 investment powers and related provisions of a trust26 instrument, unless otherwise limited or modified by that27 instrument, shall be construed as authorizing any investment28 or strategy permitted under this Section: "investments29 permissible by law for investment of trust funds", "legal30 investments", "authorized investments", "using the judgment31 and care under the circumstances then prevailing that men of32 prudence, discretion, and intelligence exercise in the33 management of their own affairs, not in regard to the34 speculation but in regard to the permanent disposition of-8- LRB9200640ACtm 1 their funds, considering the probable income as well as the2 probable safety of their capital", "prudent man rule", and3 "prudent person rule".4 (e) On and after the effective date of this amendatory5 Act of 1991, this Section applies to all existing and future6 trusts, but only as to actions or inactions occurring after7 that effective date.8 (Source: P.A. 87-715.) 9 (760 ILCS 5/5.1) (from Ch. 17, par. 1675.1) 10 Sec. 5.1. Duty not to delegate. (a)The trustee has a 11 duty not to delegate to others the performance of any acts 12 involving the exercise of judgment and discretion, except 13 that acts constituting investment functions may be delegated 14 in accordance with the Uniform Prudent Investor Act. that a15 prudent investor of comparable skills might delegate under16 the circumstances. The trustee may delegate those investment17 functions to an investment agent as provided in subsection18 (b).19 (b) For a trustee to properly delegate investment20 functions under subsection (a), all of the following21 requirements apply:22 (1) The trustee must exercise reasonable care,23 skill, and caution in selecting the investment agent, in24 establishing the scope and specific terms of any25 delegation, and in periodically reviewing the agent's26 actions in order to monitor overall performance and27 compliance with the scope and specific terms of the28 delegation.29 (2) The trustee must conduct an inquiry into the30 experience, performance history, professional licensing31 or registration, if any, and financial stability of the32 investment agent.33 (3) The investment agent shall be subject to the-9- LRB9200640ACtm 1 jurisdiction of the courts of the State of Illinois.2 (4) The investment agent shall be subject to the3 same standards that are applicable to the trustee.4 (5) The investment agent shall be liable to the5 beneficiaries of the trust and to the designated trustee6 to the same extent as if the investment agent were a7 designated trustee in relation to the exercise or8 nonexercise of the investment function.9 (6) The trustee shall send written notice of its10 intention to begin delegating investment functions under11 this Section to the beneficiaries eligible to receive12 income from the trust on the date of initial delegation13 at least 30 days before the delegation. This notice shall14 thereafter, until or unless the beneficiaries eligible to15 receive income from the trust at the time are notified to16 the contrary, authorize the trustee to delegate17 investment functions pursuant to this Section.18 (c) If all requirements of subsection (b) are satisfied,19 the trustee shall not otherwise be responsible for the20 investment decisions or actions of the investment agent to21 which the investment functions are delegated.22 (d) On and after July 1, 1992, this Section applies to23 all existing and future trusts, but only as to actions or24 inactions occurring after that date.25 (Source: P.A. 87-715; 87-895.) 26 (760 ILCS 5/5.2) (from Ch. 17, par. 1675.2) 27 Sec. 5.2. Investments in mutual funds. A trustee, 28 including a trustee of a common trust fund, may invest and 29 reinvest the trust estate in interests in any open-end or 30 closed-end management type investment company or unit 31 investment trust registered under the Investment Company Act 32 of 1940 or any investment fund exempt from registration under 33 the Investment Company Act of 1940, any of these investment -10- LRB9200640ACtm 1 companies, unit investment trusts, or investment funds being 2 a "mutual fund" for purposes of this Section, or may retain, 3 sell, or exchange those interests, provided that the 4 portfolio of the mutual fund, as an entity, is appropriate 5 under the provisions of this Act and the Uniform Prudent 6 Investor Act. A trustee shall not be prohibited from7 investing, reinvesting, retaining, or exchanging any8 interests held by the trust estate in any mutual fund for9 which the trustee or an affiliate acts as advisor or manager10 or in any other role solely on the basis that the trustee (or11 its affiliate) provides services to the mutual fund and12 receives reasonable remuneration for those services. Neither13 a trustee nor its affiliate shall be required to reduce or14 waive its compensation for services provided in connection15 with the investment, management, and administration of the16 trust estate because the trustee invests, reinvests, or17 retains the trust estate in a mutual fund, so long as the18 total compensation paid by the trust estate as trustee's fees19 and mutual fund fees, including any advisory or management20 fees, in connection with the investment of a trust estate in21 a mutual fund is reasonable; provided, however, that a22 trustee may receive Rule 12b-1 fees equal to the amount of23 those fees that would be paid to any other party.24 (Source: P.A. 90-297, eff. 8-1-97.) 25 Section 15. (Blank) 26 Section 16. (Blank)
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