Creating a trust is a powerful estate planning tool, allowing you to dictate how your assets are managed and distributed after your passing or incapacitation. A common concern for individuals with strong ethical or moral beliefs is ensuring their assets aren’t used in ways that contradict those values. Specifically, many clients ask if they can prohibit investments in businesses related to gambling within their trust. The answer is a resounding yes, with careful drafting and specific language included in the trust document. This level of control is a significant advantage of trust creation, allowing you to extend your personal values beyond your lifetime. According to a recent survey, approximately 35% of individuals express a desire to incorporate ethical considerations into their estate planning.
What happens if I don’t specify investment restrictions?
If your trust document doesn’t explicitly address investment restrictions, the trustee generally has broad discretion to invest trust assets as they see fit, adhering to the prudent investor rule. This rule requires the trustee to act with the care, skill, prudence, and diligence that a prudent person acting in a like capacity would use. However, ‘prudent’ doesn’t necessarily equate to ‘ethically aligned with the grantor’s values’. Without specific prohibitions, the trustee *could* legally invest in gambling-related businesses, even if you, the person creating the trust, strongly oppose such investments. This is why detailed drafting is essential. The Uniform Prudent Investor Act (UPIA), adopted in most states, provides a framework for trustee responsibilities, but leaves room for grantor-directed restrictions.
How do I specifically prohibit gambling investments in my trust?
To effectively prohibit gambling-related investments, you must include clear and unambiguous language in your trust document. Avoid vague terms like “unethical” or “morally objectionable”. Instead, specifically define what constitutes a prohibited investment. For example, you could state: “The trustee shall not invest in any entity that derives a significant portion of its revenue from gambling activities, including but not limited to casinos, online gambling platforms, or the manufacture of gambling equipment.” You can also include a broader clause stating that investments aligning with activities you find objectionable are prohibited. A well-drafted clause will anticipate various forms of gambling-related businesses and cover emerging technologies in the industry.
Can I restrict investments beyond gambling?
Absolutely. The beauty of a trust is its flexibility. You can restrict investments in any industry or business that conflicts with your values. This could include restrictions on investments in fossil fuels, tobacco, weapons manufacturing, or any other sector you deem objectionable. Some clients even specify positive investment criteria, directing the trustee to prioritize investments in socially responsible companies or environmental initiatives. This level of control allows you to ensure your wealth is used to support causes you believe in, even after your passing. Consider adding a clause for socially responsible investing, outlining preferences for environmental, social, and governance (ESG) factors.
What if my trustee disagrees with my restrictions?
A trustee has a fiduciary duty to follow the terms of the trust document. If a trustee disagrees with your restrictions, they are obligated to discuss their concerns with you or, if you are incapacitated, with a designated co-trustee or trust protector. However, they cannot unilaterally override your instructions. If the trustee continues to disregard your restrictions, you may have grounds to petition the court for their removal and appointment of a new trustee. Proper trust drafting includes clauses addressing dispute resolution and trustee removal procedures.
I remember old Mr. Henderson…
I recall Mr. Henderson, a retired history professor, coming to me years ago, deeply troubled. He had created a trust, but hadn’t specified investment restrictions. His son, the trustee, was a bit of a gambler, and began investing trust funds in casinos and online betting platforms. Mr. Henderson was horrified, feeling his life savings were being used to fuel an activity he strongly opposed. The ensuing legal battle was messy and expensive, and highlighted the critical importance of specifying investment restrictions upfront. He felt betrayed that his son, who knew his values, would disregard them so readily.
Then there was the Miller Family…
The Miller family presented a very different situation. Mrs. Miller, a devout member of her community, had explicitly prohibited gambling-related investments in her trust. Her daughter, Sarah, was appointed as trustee. Sarah, while respecting her mother’s wishes, initially struggled to find suitable investments that aligned with both the trust’s financial goals and the ethical restrictions. We worked together to identify a diversified portfolio of socially responsible investments that met both criteria. The trust flourished, and Mrs. Miller’s values were honored. It proved that aligning financial goals with ethical considerations is achievable with careful planning and execution.
What happens if the restriction limits investment options?
It’s important to acknowledge that imposing restrictions on investment options may limit the potential for growth. However, this doesn’t necessarily mean the trust won’t be successful. A skilled trustee can still build a diversified portfolio within the specified guidelines. The key is to balance your values with reasonable investment expectations. A thorough analysis of the available investment landscape, considering the restrictions, is crucial. According to some financial analysts, a diversified portfolio with ethical restrictions can still achieve competitive returns.
How often should I review these restrictions?
It’s advisable to periodically review your trust document, including any investment restrictions, to ensure they still align with your values and the evolving investment landscape. Laws, regulations, and the nature of industries can change over time. A review every few years, or whenever significant life events occur, is a good practice. You can amend the trust document to reflect any desired changes. Remember, a trust is a living document that should adapt to your changing needs and circumstances. A qualified estate planning attorney can assist you with this review and amendment process.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
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Feel free to ask Attorney Steve Bliss about: “How often should I update my trust?” or “What is a summary probate proceeding?” and even “What rights does a surviving spouse have in California?” Or any other related questions that you may have about Probate or my trust law practice.