How Must a Trustee Invest Trust Money in BC? The Prudent Investor Rule

If you are a trustee, you may be holding money for others and wondering what you are allowed to do with it. If you are a beneficiary, you may want to know what you can expect from the person managing it. In British Columbia, the Trustee Act sets out the rules for investing trust property.

This article explains those rules in plain language: what a trustee can invest in, the standard they are held to, when a loss is not their fault, when they can hand decisions to an advisor, and when a court may excuse a mistake.

This article covers the law of British Columbia.

What a trustee may invest in

A trustee may invest trust property in any form of property or security in which a prudent investor might invest. That is a broad permission, so the law does not limit trustees to a short list of approved investments.

There is one important limit. The permission does not authorize investing in a manner that is inconsistent with the trust. The trust document, such as a will that creates a trust, still matters, so read its terms before you decide on a strategy.

The prudent investor standard

When investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise. The test is how a careful investor would act, not whether the investments turned out well.

• Think about the purpose of the trust and who the beneficiaries are.
• Make a plan or strategy instead of reacting to each tip or market swing.
• Weigh risk against the possible return.
• Keep records of why you made your decisions.

Losses, and how the portfolio is judged

A trustee is not liable for an investment loss if their conduct conformed to a prudent plan or strategy with a reasonable assessment of risk and return. A loss alone does not prove a trustee did something wrong.

Investments are not assessed one by one, and gains may offset losses when damages are calculated. The exception is where dishonesty is involved. For a beneficiary, this means a complaint usually looks at the whole portfolio and the process behind it.

Handing decisions to an advisor or portfolio manager

A trustee may delegate investment authority to an agent, such as an advisor or portfolio manager, to the degree a prudent investor could under ordinary business practice. The trustee does not give up all responsibility. They must set the investment objectives and act prudently in choosing the agent, setting the terms, communicating the objectives and monitoring performance.

A trustee who does this is not liable for the agent's decisions. There is an exception. Delegation is not allowed where the trust requires the trustee to act personally.

Court relief and what to do next

The court may relieve a trustee from liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused. This is a decision for the court, so a trustee should not count on it.

• Trustees: read the trust terms and write down your investment objectives.
• Trustees: keep records of your plan, your reasoning and any advice you receive.
• Trustees: if you hire an agent, put the objectives in writing and review performance regularly.
• Beneficiaries: ask for information about how the trust is invested.
• Both: get legal advice early if you are unsure about the trust terms or a possible breach.

Frequently asked questions