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IAI Actuarial Core Principles · Business Management · Trusts and agency

The trustees of a family trust in Pune hold a portfolio of listed shares for the benefit of the settlor's grandchildren. A trustee wants to know the standard of care the law expects when investing trust money. Which standard applies?

A trustee must manage trust property with the care an ordinary prudent person would take over their own affairs. Honesty alone is insufficient, a professional standard is not generally imposed on every trustee, and guaranteed maximum returns are not required. The standard applies even if the deed is silent.

  1. AThe care an ordinary prudent person would take in managing their own affairs, applied to the trust propertyCorrect
  2. BThe care of a professional fund manager, whether or not the trustee is paid
  3. COnly honesty, with no liability for carelessness if the trustee acted in good faith
  4. DThe highest possible return must be achieved, otherwise the trustee is liable
  5. No standard applies if the trust deed is silent on investments

Explanation

Under Indian trust law a trustee must deal with trust property as a man of ordinary prudence would deal with his own property of the same kind. Good faith alone is not enough, since carelessness can create liability. There is no duty to guarantee the best return, and silence in the deed does not remove the standard.

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