Why Unify Policies?
Why must a policy situated with others in the same trust be evaluated and managed differently
(requiring additional steps) than if it were the sole asset in the trust?
A crucial aspect of managing trusts is the unification of all assets to manage them as one,
and to better continually reduce risks and costs, and improve productivity and suitability.
CFR Reg 9.6 (c) (as reiterated in the Comptroller's Unique and Hard-to-Value Assets' Handbook
[August 2012]): "..a bank shall ...evaluate whether the assets are appropriate , individually, and
collectively , for the account."
"....to ensure each asset is appropriate for the account as a whole."
"..must assess how these assets fit into the account's overall investment goals."
SECTION 2. STANDARD OF CARE; PORTFOLIO STRATEGY; RISK AND RETURN
(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.
Portfolio Standard. Subsection (b) emphasizes the consolidated portfolio standard for evaluating
investment decisions. An investment that might be imprudent standing alone can become prudent
if undertaken in sensible relation to other trust assets, or to other non-trust assets. In the trust
setting the term "portfolio" embraces the entire trust estate.
"Specific investments or techniques are not per se prudent or imprudent. The riskiness of a specific
property, and thus the propriety of its inclusion in the trust estate, is not judged in the abstract but in
terms of its anticipated effect on the particular trust's portfolio."
2(c): Among circumstances that a trustee shall consider in investing and managing trust assets are
such of the following as are relevant to the trust or its beneficiaries:
(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;
2(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
SECTION 3 DIVERSIFICATION. A trustee shall diversify the investments of the trust unless the
trustee reasonably determines that, because of special circumstances, the purposes of the trust are
better served without diversifying.
UPIA SECTION 7. 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.
Wasting beneficiaries' money is imprudent. In devising and implementing strategies for the
investment and management of trust assets, trustees are obliged to minimize costs.
UPMIFA: Uniform Prudent Management of Institutional Funds Act: Portfolio Standard
3(e)(2) : management and investment decisions about an individual asset must be made not in isolation
but rather in a context of the institutional fund’s portfolio investments as a whole and as a part of an
overall investment strategy having risk and return objectives reasonably suited to the fund and to the
3(e)(3): “ the riskiness of a specific property, and thus the propriety of its inclusion in the trust estate, is
not judged in the abstract but in terms on the anticipated effect on the particular trust’s
Prudent Investor Rule:
Whether investments are underproductive or overproductive of income shall be judged by the
portfolio as a whole and not as to any particular asset.
ACTEC Journal 2006 “Trustee Administration of Life Insurance”:
pg. 289: “in the words of one author, in evaluating assets and asset performance under the
UPIA, ‘generally a trustee must … conduct analysis according to the financial valuation principles
embodied in modern portfolio theory.”
pg. 292: “A lawyer who not only prepares an ILIT, but who also advises a client about
insurance products may be deemed to have abandoned the counselor’s role for one which subjects
the attorney to a higher performance standard.”
“If an inter vivos trust contains a life insurance policy and other assets, the trustee should be
capable of assessing the life insurance policy with evaluative tools comparable to those employed
for other trust held assets.”
pg. 295: “In the author’s opinion, the UPIA requires investment management of a life
insurance policy held in an ILIT. A trustee who is charged with responsibility for a life insurance
policy must manage that policy just as it would any other trust investment.
Since the UPIA only endorses one investment standard against which to evaluate a trustees
investment management, ..”
ACTEC Journal 2006: ILIT Asset Management: The Written Investment Policy Statement
pg. 253: “Trust assets are “completion portfolio.” A completion portfolio complements
or completes an existing portfolio…”
Thus, it is a customized portfolio designed to fill in asset allocation gaps or to hedge potential
liabilities. When combined with the grantor’s other assets, the aggregate portfolio is more balanced,
prudent and diversified.”
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