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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:
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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
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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
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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,
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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 manage
23 trust assets as a prudent investor would considering the
24 purposes, terms, distribution requirements, and other
25 circumstances of the trust. This standard requires the
26 exercise of reasonable care, skill, and caution and is to
27 be applied to investments not in isolation, but in the
28 context of the trust portfolio as a whole and as a part
29 of an overall investment strategy that should incorporate
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1 risk and return objectives reasonably suitable to the
2 trust.
3 (2) No specific investment or course of action is,
4 taken alone, prudent or imprudent. The trustee may invest
5 in every kind of property and type of investment, subject
6 to this Section. The trustee's investment decisions and
7 actions are to be judged in terms of the trustee's
8 reasonable business judgment regarding the anticipated
9 effect on the trust portfolio as a whole under the facts
10 and circumstances prevailing at the time of the decision
11 or action. The prudent investor rule is a test of conduct
12 and not of resulting performance.
13 (3) The trustee has a duty to diversify the
14 investments of the trust unless, under the circumstances,
15 the trustee reasonably believes it is in the interests of
16 the beneficiaries and furthers the purposes of the trust
17 not to diversify.
18 (4) The trustee has a duty, within a reasonable
19 time after the acceptance of the trusteeship, to review
20 trust assets and to make and implement decisions
21 concerning the retention and disposition of original
22 pre-existing investments in order to conform to the
23 provisions of this Section. The trustee's decision to
24 retain or dispose of an asset may properly be influenced
25 by the asset's special relationship or value to the
26 purposes of the trust or to some or all of the
27 beneficiaries, consistent with the trustee's duty of
28 impartiality.
29 (5) The trustee has a duty to pursue an investment
30 strategy that considers both the reasonable production of
31 income and safety of capital, consistent with the
32 trustee's duty of impartiality and the purposes of the
33 trust. Whether investments are underproductive or
34 overproductive of income shall be judged by the portfolio
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1 as a whole and not as to any particular asset.
2 (6) The circumstances that the trustee may consider
3 in making investment decisions include, without
4 limitation, the general economic conditions, the possible
5 effect of inflation, the expected tax consequences of
6 investment decisions or strategies, the role each
7 investment or course of action plays within the overall
8 portfolio, the expected total return (including both
9 income yield and appreciation of capital), and the duty
10 to incur only reasonable and appropriate costs. The
11 trustee may but need not consider related trusts and the
12 assets of beneficiaries when making investment decisions.
13 (b) The provisions of this Section may be expanded,
14 restricted, eliminated, or otherwise altered by express
15 provisions of the trust instrument. The trustee is not
16 liable to a beneficiary for the trustee's reasonable and good
17 faith reliance on those express provisions.
18 (c) Nothing in this Section abrogates or restricts the
19 power of an appropriate court in proper cases (i) to direct
20 or permit the trustee to deviate from the terms of the trust
21 instrument or (ii) to direct or permit the trustee to take,
22 or to restrain the trustee from taking, any action regarding
23 the making or retention of investments.
24 (d) The following terms or comparable language in the
25 investment powers and related provisions of a trust
26 instrument, unless otherwise limited or modified by that
27 instrument, shall be construed as authorizing any investment
28 or strategy permitted under this Section: "investments
29 permissible by law for investment of trust funds", "legal
30 investments", "authorized investments", "using the judgment
31 and care under the circumstances then prevailing that men of
32 prudence, discretion, and intelligence exercise in the
33 management of their own affairs, not in regard to the
34 speculation but in regard to the permanent disposition of
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1 their funds, considering the probable income as well as the
2 probable safety of their capital", "prudent man rule", and
3 "prudent person rule".
4 (e) On and after the effective date of this amendatory
5 Act of 1991, this Section applies to all existing and future
6 trusts, but only as to actions or inactions occurring after
7 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 a
15 prudent investor of comparable skills might delegate under
16 the circumstances. The trustee may delegate those investment
17 functions to an investment agent as provided in subsection
18 (b).
19 (b) For a trustee to properly delegate investment
20 functions under subsection (a), all of the following
21 requirements apply:
22 (1) The trustee must exercise reasonable care,
23 skill, and caution in selecting the investment agent, in
24 establishing the scope and specific terms of any
25 delegation, and in periodically reviewing the agent's
26 actions in order to monitor overall performance and
27 compliance with the scope and specific terms of the
28 delegation.
29 (2) The trustee must conduct an inquiry into the
30 experience, performance history, professional licensing
31 or registration, if any, and financial stability of the
32 investment agent.
33 (3) The investment agent shall be subject to the
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1 jurisdiction of the courts of the State of Illinois.
2 (4) The investment agent shall be subject to the
3 same standards that are applicable to the trustee.
4 (5) The investment agent shall be liable to the
5 beneficiaries of the trust and to the designated trustee
6 to the same extent as if the investment agent were a
7 designated trustee in relation to the exercise or
8 nonexercise of the investment function.
9 (6) The trustee shall send written notice of its
10 intention to begin delegating investment functions under
11 this Section to the beneficiaries eligible to receive
12 income from the trust on the date of initial delegation
13 at least 30 days before the delegation. This notice shall
14 thereafter, until or unless the beneficiaries eligible to
15 receive income from the trust at the time are notified to
16 the contrary, authorize the trustee to delegate
17 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 the
20 investment decisions or actions of the investment agent to
21 which the investment functions are delegated.
22 (d) On and after July 1, 1992, this Section applies to
23 all existing and future trusts, but only as to actions or
24 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
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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 from
7 investing, reinvesting, retaining, or exchanging any
8 interests held by the trust estate in any mutual fund for
9 which the trustee or an affiliate acts as advisor or manager
10 or in any other role solely on the basis that the trustee (or
11 its affiliate) provides services to the mutual fund and
12 receives reasonable remuneration for those services. Neither
13 a trustee nor its affiliate shall be required to reduce or
14 waive its compensation for services provided in connection
15 with the investment, management, and administration of the
16 trust estate because the trustee invests, reinvests, or
17 retains the trust estate in a mutual fund, so long as the
18 total compensation paid by the trust estate as trustee's fees
19 and mutual fund fees, including any advisory or management
20 fees, in connection with the investment of a trust estate in
21 a mutual fund is reasonable; provided, however, that a
22 trustee may receive Rule 12b-1 fees equal to the amount of
23 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)