USA Law and Practice Contributed by: Christopher Boyett, David Scott Sloan, Max Angel and Eric Bracy, Holland & Knight LLP
To protect fiduciaries from liability, trust documents often include exoneration or exculpatory clauses that limit a fiduciary’s liability for actions taken in good faith. Additionally, fiduciaries may delegate specific responsibilities, such as investment management, to qualified third-party professionals. This delegation must be done prudently, with care in selecting and monitoring the agent. These protections help ensure that fiduciaries can perform their duties without undue risk, provided they act responsibly and within the bounds of the law. 6.3 Fiduciary Regulation US law regulates fiduciary investment of assets through the “prudent investor rule”, which requires fiduciaries to manage assets with care, skill and cau - tion, as a prudent investor would. This rule empha - sises a total return approach, meaning fiduciaries must consider both income and capital appreciation when making investment decisions. The law does not label any specific investment as inherently prudent or imprudent; instead, it evaluates the fiduciary’s overall strategy and process. Fiduciaries are expected to diversify investments unless they reasonably believe that not doing so is in the best interest of the beneficiaries and aligns with the trust’s purpose. They must also balance risk-and- return objectives based on the trust’s goals and the needs of the beneficiaries. Trustees are required to disclose investments in instruments they control and must inform beneficiaries about the nature of these investments and any relationships with affiliated enti - ties involved in them. This framework encourages transparency and accountability while allowing flex - The US applies the prudent investor rule as the stand - ard for fiduciary investment of assets. This rule requires fiduciaries to invest and manage trust assets as a pru - dent investor would, considering the purposes, terms, distribution requirements, and other circumstances of the trust. It emphasises a total-return approach and requires fiduciaries to evaluate investments in the context of the entire portfolio, rather than in isolation. This approach aligns with modern portfolio theory in ibility in investment choices. 6.4 Fiduciary Investment The Prudent Investor Rule
its focus on risk-adjusted returns and diversification, but it is more flexible and principle-based rather than formulaic. Diversification Diversification is generally required under the prudent investor rule unless the fiduciary reasonably deter - mines that it is in the best interest of the beneficiaries not to diversify. Trustees must balance income pro - duction and capital preservation, and they are expect - ed to disclose investments in instruments they control, especially if there are potential conflicts of interest. Generally, trusts and similar entities are authorised to hold active businesses. However, fiduciaries must manage these interests prudently and in accordance with their duties. If a trust owns a business, the trustee may effectively run it, but they must do so in a way that aligns with the trust’s objectives and the benefi - ciaries’ interests. There are no blanket prohibitions, but fiduciaries must avoid self-dealing and must act in good faith, with loyalty and care. They may delegate business management functions to qualified profes - sionals, provided they exercise proper oversight. 7. Citizenship and Residency 7.1 Requirements for Domicile, Residency and Citizenship Domicile, residency and citizenship each carry distinct legal and tax implications under US federal law. To establish domicile in a US state, an individual must demonstrate an intent to reside there permanently or indefinitely. This is typically evidenced by actions such as purchasing a primary residence, registering to vote, obtaining a driver’s licence, and using the state address for tax and legal purposes. Severing ties with a prior domicile is also important to avoid conflicting claims. Residency for US federal tax purposes is determined by citizenship status or by meeting the substantial presence test. US citizens and lawful permanent residents (green card holders) are considered tax residents and are subject to US income tax on their worldwide income, regardless of where they live. Non-
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