By Matthew A. Quick The actions of a personal representative, guardian, conservator or trustee, or a successor of them, are governed by the Michigan Prudent Investor Rule, unless specifically excepted or restricted. MCL 700.1501, et seq; MCL 700.1104(e); MCL 700.1502. The Michigan Prudent Investor Rule, to wit, MCL 700.1502(1), provides:
A fiduciary shall invest and manage assets held in a fiduciary capacity as a prudent investor would, taking into account the purposes, terms, distribution requirements expressed in the governing instrument, and other circumstances of the fiduciary estate. To satisfy this standard, the fiduciary must exercise reasonable care, skill, and caution.
The Michigan Prudent Investor Rule continues:
A fiduciary's investment and management decisions with respect to individual assets shall be evaluated not in isolation, but rather in the context of the fiduciary estate portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fiduciary estate. MCL 700.1503(1).
To achieve this goal, the following considerations are encouraged: (1) The present general economic conditions; (2) Any possible effect of inflation or deflation; (3) The expected tax consequences of an investment decision or strategy; (4) The role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely-held enterprises, tangible and intangible personal property and real property; (5) The expected total return from income and the appreciation of capital; (6) Other resources of the beneficiaries; (7) The need for liquidity, regularity of income, and preservation or appreciation of capital; and (8) An asset's special relationship or special value, if any, to the purposes of the fiduciary estate or to one or more of the beneficiaries. MCL 700.1503(2). In light of these considerations, a person who is subject to the Michigan Prudent Investor Rule must (1) Make a reasonable effort to verify facts relevant to the investment and management of fiduciary assets; and (2) Invest in any kind of property or type of investment consistent with the standards of the Michigan Prudent Investor Rule. MCL 700.1503(3) and (4). In addition, those with a special skill or expertise, or those that are appointed to act because they represented a special skill or expertise, must use that special skill or expertise when investing or managing assets. MCL 700.1503(5).
Once appointed as a personal representative, guardian, conservator or trustee, or a successor of them, one must inventory the assets over which he or she has control and implement a plan to bring the assets into compliance with the wishes of the owner of the property, or court order, as well as any other requirements of the Michigan Prudent Investor Rule concerning the retention and disposition of the assets. MCL 700.1505. In implementing a plan, one must invest and manage the assets solely in the interest of the beneficiaries. MCL 700.1506. This requires diversification of the assets (unless it is determined that, because of special circumstances, the purposes of the fiduciary estate are better served without diversifying) and, in the event there are two or more beneficiaries, impartiality between the beneficiaries (the investment and management of the assets must reflect any differing interests of the beneficiaries). MCL 700.1504 and MCL 700.1507.
The prudence of a particular investment is not inherent. MCL 700.1503(4). Compliance with the Michigan Prudent Investor Rule is determined in light of the facts and circumstances that exist at the time of the decision or action, and not by hindsight. The Michigan Prudent Investor Rule requires a standard of conduct, not outcome or performance. MCL 700.1509.
One that has been appointed a personal representative, guardian, conservator or trustee, or a successor them, may delegate the power to invest and manage the assets, so long as delegation has not been restricted. In the event one wishes to delegate his or her appointed duties, he or she must exercise reasonable care, skill, and caution in all of the following: (1) Selecting an agent; (2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the property owner's wishes or court order; and (3) Periodically reviewing the actions of the person that received the power to monitor his or her performance and compliance with the terms of the delegation. MCL 700.1510. If one who delegates his or her appointed power does so with the required care, skill and caution, he or she is not liable to the beneficiaries, or to the owner of the property, for a poor decision or action of the person who received the delegated power.
Please note: If a question arises regarding whether a contemplated investment decision is permissible under the Michigan Prudent Investor Rule, a petition to the Probate Court for authorization may be made.