Yes, you can generally limit investments within a testamentary trust to government securities, though it requires careful drafting and consideration of the trust’s purpose and the beneficiaries’ needs. A testamentary trust, created through a will and taking effect after your death, offers flexibility in dictating investment strategies; however, overly restrictive clauses can create challenges for the trustee and potentially invalidate the trust if deemed unreasonable. While you, as the grantor, have significant control over the initial terms, California Probate Code sections provide guidelines and courts retain the power to modify unreasonable provisions. Approximately 65% of Americans believe having a will is important, yet only 45% actually have one, highlighting the need for proactive estate planning that addresses investment preferences.
What are the pros and cons of a conservative investment approach?
A conservative approach, focusing solely on government securities like Treasury bonds, bills, and notes, offers principal preservation and a predictable income stream. This is particularly appealing for beneficiaries who are risk-averse, require a stable income, or have limited financial literacy. However, limiting investments exclusively to government securities can significantly hinder growth potential and may not outpace inflation, eroding the real value of the trust assets over time. The average annual return of U.S. Treasury bonds over the past 20 years has been around 3.5%, while the S&P 500 has averaged closer to 10%, illustrating this difference. It’s crucial to balance safety with the need for asset appreciation, especially for long-term trusts.
Could limiting investment options create trustee liability?
Yes, overly restrictive investment clauses can expose the trustee to liability. Trustees have a fiduciary duty to act prudently and in the best interests of the beneficiaries, and a court might find that *requiring* investment solely in low-yield government securities constitutes a breach of that duty if a more diversified approach would have yielded a better long-term outcome. The Uniform Prudent Investor Act, adopted in California, emphasizes a total return approach and allows trustees to invest in a wide range of assets, including stocks, bonds, and real estate. A trustee could be sued if they strictly adhere to your directive, ignoring potentially more profitable opportunities, particularly if the beneficiaries are young and have a long investment time horizon. Approximately 20% of trust litigation cases involve disputes over investment decisions.
I remember old Mr. Henderson…
Old Mr. Henderson was a retired postal worker, a man of simple habits and an even simpler view of money. He insisted his testamentary trust, created decades ago, only allow investments in U.S. Savings Bonds. His daughter, a bright woman now running a successful tech company, was understandably frustrated. When Mr. Henderson passed, the trust contained a modest sum, barely enough to cover her children’s college tuition, despite being funded consistently over 30 years. The low yield of the savings bonds, while safe, hadn’t kept pace with rising tuition costs, creating a financial burden she hadn’t anticipated. His intent was purely protective, but the rigidity of the trust terms unintentionally limited the potential for growth, highlighting the importance of considering long-term needs.
But then there was the Reynolds Family…
The Reynolds family, on the other hand, approached estate planning with a collaborative spirit. Mrs. Reynolds, a savvy investor, worked closely with Steve Bliss to create a testamentary trust that prioritized stability *and* growth. While she expressed a preference for a significant portion of the trust to be invested in government securities for her grandchildren’s education, she allowed the trustee discretion to diversify into other low-to-moderate-risk assets. Years later, after her passing, the trustee was able to strategically allocate funds, benefiting from both the security of government bonds and the growth potential of a diversified portfolio. This resulted in a substantial sum available for the grandchildren’s college funds and beyond, demonstrating how thoughtful planning and flexibility can create lasting financial security. It truly showed the beauty of a balance between safety and growth.
“A well-crafted testamentary trust isn’t about restricting options; it’s about empowering the trustee to make informed decisions that align with the grantor’s values *and* the beneficiaries’ long-term needs.” – Steve Bliss, Estate Planning Attorney.
Ultimately, while you can specify a preference for government securities in your testamentary trust, it’s crucial to avoid absolute restrictions. A more effective approach is to grant the trustee discretion to invest in a diversified portfolio, with a *guideline* suggesting a certain percentage allocation to government securities. This allows the trustee to fulfill their fiduciary duty, balance risk and reward, and ensure the trust assets provide lasting benefit for your beneficiaries.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
banckruptcy attorney
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What’s the role of a healthcare proxy or healthcare power of attorney?” Or “What role does a will play in probate?” or “How is a living trust different from a will? and even: “Can I get a mortgage after filing for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.