This two-part article addresses the fiduciary duties of lawyers acting as co-trustees. Its focus is the monitoring of investments and investment strategies to determine their ongoing prudence and suitability.

This two-part article addresses the fiduciary duties of lawyers acting as co-trustees. Its focus is the monitoring of investments and investment strategies to determine their ongoing prudence and suitability. The power to delegate investment functions or to direct these functions to a commercial co-trustee may not insulate the attorney from liability resulting from breach of fiduciary duties arising from investment activities. This is particularly the case for chronic investment underperformance. Part One discusses relevant sections of the Annotated Code as well as recent court decisions. It continues with information concerning the proper (and improper) ways to report return. An accurate presentation of investment return is a critical first step in judging the success or failure of investment activities. Appropriate measures of return should be understood prior to the implementation of the trust portfolio and should be monitored during the trust’s planning horizon. Return and risk, as discussed in this article, have little or nothing to do with the task of finding “good” investments. In general, lawyers are not familiar with financial economics nor are they experienced in investment matters. The task of finding “good” investments, therefore, is one that is best left to banks, brokers, or financial advisors. However, the attorney, acting the in capacity of trustee, retains responsibility for setting the terms of any delegation; and, it is critical that effective and easy-to-understand reporting systems be put into place.

The second part of the article discusses investment risk and develops a rationale for a portfolio performance reporting system that may be readily understood by trustees irrespective of the depth of their investment expertise. It provides a sample “template” that promotes unbiased performance evaluation. The lawyer/trustee needs to tell the agent responsible for producing investment returns what information is required; and, needs to set a clear and correct format for the presentation of the information. Use of a reporting template that must be completed by the agent responsible for investments is strong evidence that the attorney trustee continues to monitor the performance of the agent according to the terms of the delegation. It places the attorney in the position of “trust protector” and provides clear evidence that the attorney/trustee collects fees for activities that extend beyond mere passive acquiescence to the recommendations of an investment agent interested in commissions or asset management fees.

Download The Lawyer as Trustee: Duty to Monitor and Review Investments.

This article was co-authored by Mark G. Griffin, Esq. and Patrick J. Collins Ph.D., CLU, CFA and originally appeared in the Maryland Bar Journal.