A close look at the law governing endowment funds march 10, 2015 frank monti the uniform prudent management of institutional funds act, or upmifa, is a complex law that holds sway in almost every state in the nation. While there are numerous uniform acts related to trusts, such as the uniform prudent investor act, the uniform principal and income act, the niform rustees owers act, the niform. These changes have occurred under the influence of a large and broadly accepted body of empirical and theoretical knowledge about. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
Prudent investor rule prudent investor act and the. In addition, the most recent versions of the uniform prudent investor act, the uniform. Under the prudent investor act standard, a fiduciary would not be held liable for individual investment losses, so long as the investment, at the time of acquisition. Over forty jurisdictions now have the uniform prudent investor act upia that updates their rules on investment. Uniform prudent investor act how is uniform prudent.
Uniform prudent management of institutional funds act upmifa. Under this act, fiduciaries are permitted to utilize modern portfolio theory to guide investment decisions. Uniform prudent investor act and the future of trust investing by john h. This legislation was part of the 2003 legislative package of. The uniform prudent investor act upia, an act promulgated in 1994 and already enacted in 43 jurisdictions, served as a. It is an update to the previous prudent man standards intended to reflect the changes that have occurred in investment practice since the late. Prefatory note over the quarter century from the late 1960s the investment practices of fiduciaries experienced significant change. Prudent investor rule compliance in california stimmel law. However, all other private foundations, specifically including those organized as nonprofit corporations, need to be aware of the law and either react or prepare to react to its changes. As enacted by the 78 th texas legislature 2003 effective january 1, 2004. With the official comments of the national conference of commissioners on uniform state laws and the real estate, probate and trust law section of the state bar of texas. The uniform prudent investor act upia was adopted in 1992 by the american law institutes third restatement of the law of trusts.
Federal law regulates private foundation investment management practices through the prohibitions. A trustees obligations are set forth in the uniform prudent investor act upia and include making prudent investment decisions, diversifying trust assets, keeping administrative costs down, and being impartial with respect to the current income beneficiaries and remaindermen. This act, and variant forms enacted in a number of other states, has displaced the older prudent man standard, bringing trust law into line with modern investment practice. Georgia trust act and a comparison of the section to its counterpart, if any, in the utc and the statutes of other states including variations of the utc provisions in states that have adopted the utc. Responsible investing for the modern fiduciary northern trust.
Except as otherwise provided in subsection 2, a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in sections 591602, 591603, 591605, 591606, and 591607 and in this. Guidelines for making prudent investment decisions tax. See uniform prudent investor act, section 3 a trustee shall diversify the investments ofthe trust unless the trustee reasonably determines that, because of special circumstances, the purposes ofthe trust are better served without diversifying. The codes and laws on this website are in the public domain. Upmifa, as a successor to the uniform management of institutional funds act, provides better guidance regarding the operation of the prudence standard. Does the prudent investor need the uniform prudent investor act an empirical study of trust investment practices martin d. The uniform prudent investor act upia is a uniform statute that sets out guidelines for trustees to follow when investing trust assets. This is article 9 of the code of virginia, titled uniform prudent investor act it is part of title 64. Commissioners on uniform state laws nccusl the uniform trust code utc was promulgated. Brucken is a coeditor of the osba les ohio trust code manual. The prudent investor rule and trust asset allocation. States that have enacted the uniform prudent investor act are encouraged to. The uniform law commission now provides locators for uniform laws this locator links to state statutes which correspond to uniform laws in the subject areas of business and finance. A close look at the law governing endowment funds inside.
We also assist our clients in developing risk management and compliance programs, and training programs in responding. A trust accounts entire investment portfolio is considered when determining the prudence of an individual investment. California uniform prudent investor act index mutual funds. Upmifa provides modern articulations of the prudence standards for the management and investment of charitable funds and for endowment spending. Chapter 2 the uniform prudent investor act with comments page 5 introduction the 78th texas legislature enacted a texas version of the uniform prudent investor act of 1994. Does the prudent investor need the uniform prudent investor. This legislation was part of the 2003 legislative package of the real estate, probate and trust law section of the state bar. States that have enacted the uniform prudent investor act are encouraged to recodify it as part of their. The new act provides modern articulations of the prudence standards for the management and investment of charitable funds and for endowment spending. Michigans rule follows closely the uniform prudent investor act adopted in 1994 by the national conference of commissioners on uniform state laws, but has a few refinements to tailor the rule to the rest of epic and other michigan law. It is part of chapter 7, titled uniform trust code. New subsection f authorizes the administrator to provide for exemptions by rule or order to accommodate, for example, fees permitted under section 205 of the investment advisers act of 1940.
Section 6 uniform prudent investor act 2014 new mexico. The investment process required by the uniform prudent. The uniform prudent investor act upia undertakes to update trust investment law in recognition of the alterations that have occurred in investment practice. This article, together with subdivision a of section 16002 and section 16003, constitutes the prudent investor rule and may be cited as the uniform prudent investor act. Given the link between erisa and the uniform prudent investor act as well as the restatement from which the act is derived, it might be useful to turn to the act and the restatement for help in beginning to. Except as otherwise provided in section 902, a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in this chapter.
According to the uniform law commissioners, the entity that authored it, upmifa, as a successor to the uniform management of institutional funds act, provides better guidance regarding the operation of the prudence standard. For states that have adopted a version of the prudent investor rule, this portfolio management approach supersedes the prudent man rule. These sections were based upon 112 of the uniform prudent investor act. Uniform management of institutional funds act, or uniform prudent investor act2. A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. Public fund fiduciary standards principles and practice. Sections 1 through 12 of this 1997 amendatory and supplementary act shall be known and may be cited as the prudent investor act. Obsolescence over time is not the only stimulus for promulgating upia 1997.
Uniform prudent management of institutional funds act. Did reform of prudent trust investment laws change trust portfolio. Over the quarter century from the late 1960s the investment practices of fiduciaries experienced significant change. A fiduciary is not liable to a beneficiary to the extent that the fiduciary acted in reasonable reliance on those express provisions. This article is brought to you for free and open access by the journals at university of maine school of law digital commons. Uniform securities act as originally contained in subsection b and as deleted by the 1981 nasaa action. Uniform prudent management of institutional funds act upmifa19 govern. Does the prudent investor need the uniform prudent. To provide a comprehensive model for codifying the law on trusts. Uniform prudent investor act how is uniform prudent investor act abbreviated. Prior to this, a prudent person rule, the measurement of investment performance centered on the amount of trust income earned by the assets and the conservation of the assets for eventual distribution to the remainderman. May 20, 2017 a trustees obligations are set forth in the uniform prudent investor act upia and include making prudent investment decisions, diversifying trust assets, keeping administrative costs down, and being impartial with respect to the current income beneficiaries and remaindermen.
Uniform prudent investor act upia, which was adopted in 1992 by the american law institute s third restatement of the law of trusts restatement of trust 3d, reflects a modern portfolio theory and total return approach to the exercise of fiduciary investment discretion. Investment standards for a trustee in a trust tld law. The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the. Our group provides practical advice on fiduciary matters based upon occ regulation 9, the federal banking laws, the federal securities laws, erisa and state statutes, including, the uniform probate code, the uniform prudent investor act, the uniform principal and income act, and the uniform trust code. Today some version of the new prudent investor rule is the law in all states. Summary statistics although a private trust arises from private agreement without the need for a filing with the state, there are nonetheless public data on trust usage in donative transfers, chiefly from two sources. Uniform law commission the uniform law commission ulc, also known as the national conference of commissioners on uniform state laws, established in 1892, provides states with nonpartisan, wellconceived and welldrafted legislation that brings clarity and stability to critical areas of state statutory law. This time period showed that longterm bonds were not a financial asset that could be held in portfolios without regard to risk. The prudent investor rule is a default rule that may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument. The uniform prudent investor act upia, which was adopted in 1992 by the american law institutes third restatement of the law of trusts restatement of trust 3d, reflects a modern portfolio theory and total return approach to the exercise of fiduciary investment discretion. Financial advisers cant overlook the prudent investor rule.
The uniform prudent investor act of texas with comments. Uniform prudent investor act probate code section 1604516054 16045. It is an update to the previous prudent man standards intended to reflect the changes that have occurred in investment practice since the late 1960s. Uniform business and financial laws locator uniform laws. States, however, may and often do, modify uniform model laws when enacting legislation. Uniform prudent investor act prefatory note over the quarter century from the late 1960s the investment practices of fiduciaries experienced significant change. The uniform prudent investor act until recently, the investment authority of trustees in most states was governed by a standard known as the prudent man rule. Fiduciary duty overview for endowments and foundations. The investment losses and trustee experiences of the 1970s was the beginning of the end for the traditional prudent person rule in american trust investment law. This standard was originally formulated as a general statement of care, skill and caution that would allow trustees the flexibility appropriate to particular circumstances. This concept has been codified in the 1994 uniform prudent investor act. There was no mention of, or interest in, growth of. This approach allows fiduciaries to utilize modern portfolio theory to guide investment decisions and requires risk.
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