2018 Tennessee Code

Title 35 – Fiduciaries and Trust Estates

Chapter 14 – Uniform Prudent Investor Act



§ 35-14-101. Short title.

This chapter shall be known and may be cited as the “Tennessee Uniform Prudent Investor Act of 2002.”

§ 35-14-102. Chapter definitions.

As used in this chapter, unless the context otherwise requires:
(1) “Governing instrument” means:
(A) A will, deed, trust instrument or agency agreement;
(B) For purposes of subdivision (1)(A), an agency agreement includes but is not limited to, any agreement under which any delegation is made, either pursuant to § 35-15-807 or by anyone holding a power or duty pursuant to chapter 15, part 12;
(2) “Trust” means any fiduciary relationship created by a governing instrument; and
(3) “Trustee” means any fiduciary as defined in § 35-15-103.

§ 35-14-103. Prudent investor rule.

(a) Except as otherwise provided in subsection (b), 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.
(b) The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust.

§ 35-14-104. Standard of care — Portfolio strategy — Risk and return objectives.

(a) 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. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
(b) A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.
(c) Among circumstances that a trustee may consider in investing and managing trust assets the following are relevant to the trust or its beneficiaries:
(1) General economic conditions;
(2) The possible effect of inflation or deflation;
(3) The expected tax consequences of investment decisions or strategies;
(4) The role that each investment or course of action plays within the overall trust 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) Needs 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 trust or to one (1) or more of the beneficiaries.
(d) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.
(e) In addition to the permissible investments listed in §§ 35-3-102 — 35-3-111, a trustee may invest in any kind of property or type of investment consistent with the standards of this chapter.
(f) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee’s representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.
(g) The powers granted by this section to trustees, guardians and other fiduciaries shall be in addition to the powers existing under other provisions of this code authorizing investments by fiduciaries.

§ 35-14-105. Diversification.

(a) A trustee shall diversify the investments of the trust:
(1) Unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying,
(2) Except as otherwise provided in subsection (b).
(1) In the absence of express provisions to the contrary in the governing instrument, a fiduciary may without liability continue to hold property received into a trust at its inception or subsequently added to it or acquired pursuant to proper authority if and as long as the fiduciary, in the exercise of good faith and reasonable prudence, discretion and intelligence, may consider that retention is in the best interest of the trust and its beneficiaries or in furtherance of the goals of the trustor as determined from that instrument. Such property may include capital stock in the corporate fiduciary and stock in any corporation controlling, controlled by or under common control with such fiduciary; and the fiduciary may acquire additional shares of such stock by stock dividends, stock splits, exchanges and conversions for other stock or debentures and exercise of rights to acquire stock of the corporation or another corporation acquiring the stock of the corporation by merger, consolidation or reorganization.
(2) In the absence of express provisions to the contrary in the governing instrument, a deposit of trust funds at interest in any bank, savings and loan association or other financial institution (including the fiduciary and an affiliated depository institution) shall be a qualified investment to the extent that such deposit is insured under any present or future law of the United States. The fiduciary may also hold deposits in such institutions without interest in reasonable amounts and for reasonable times for operating expenses, anticipated distributions and pending investments.
(c) (1) Notwithstanding any other provision of this chapter to the contrary, and except as otherwise provided in the governing instrument, the duties of a trustee regarding the acquisition, retention or ownership of a contract of insurance on the life of the grantor of the trust, or on the lives of the grantor and the grantor’s spouse, children, grandchildren, or parents, do not include a duty to:
(A) Determine whether any contract of life insurance in the trust, or to be acquired by the trust, is or remains a proper investment;
(i) As to the type of insurance contract;
(ii) As to the quality of the insurance company;
(iii) Or otherwise.
(B) Diversify the investment; or
(C) Exercise any policy options, rights, or privileges available under any contract of life insurance in the trust, including any right to borrow the cash value or reserve of the policy, acquire a paid-up policy, or convert to a different policy.
(2) The trustee is not liable to the beneficiaries of the contract of insurance or to any other party for loss arising from the absence of these duties regarding insurance contracts under this subsection (c).

§ 35-14-106. Duties at inception of trusteeship.

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

§ 35-14-107. Loyalty.

A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries.

§ 35-14-108. Impartiality.

If a trust has two (2) or more beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.

§ 35-14-109. Investment costs.

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.

§ 35-14-110. Reviewing compliance.

Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.

§ 35-14-111. Delegation of investment and management functions.

(a) A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:
(1) Selecting an agent;
(2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and
(3) Periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the terms of the delegation.
(b) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with the terms of the delegation.
(c) A trustee who complies with the requirements of subsection (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
(d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state.

§ 35-14-112. Language invoking standard of act.

The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment or strategy permitted under this chapter: “investments permissible by law for investment of trust funds,” “legal investments,” “authorized investments,” “using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital,” “prudent man rule,” “prudent trustee rule,” “prudent person rule,” and “prudent investor rule.”

§ 35-14-113. Application to existing trusts.

(a) This chapter applies to trusts existing on and created after July 1, 2002. As applied to trusts existing on July 1, 2002, this chapter governs only decisions or actions occurring after that date.
(b) This section shall not apply in any situation governed by the Uniform Veterans Guardianship Act, compiled in title 34, chapter 5.

§ 35-14-114. Court authority.

Nothing in this chapter abrogates or restricts the power of an appropriate court in proper cases to direct or permit the fiduciary to deviate from the terms of the governing instrument or restrains a fiduciary from taking any action regarding the making or retention of investments.

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