Trusts and Estates > Plus > Ethics > Closely Held Business Interests And the Trustee's Duty to Diversify

Apr 1, 2009 12:00 PM

Closely Held Business Interests And the Trustee's Duty to Diversify

By W. Curtis Elliott, Jr. & Briani L. Bennett

It's well settled in American jurisprudence governing trust administration that, as a general rule, the trustee's duties of due care and prudence in holding and managing trust assets include the duty to diversify investments.1 While modern portfolio theory unequivocally embraces broad investment diversification for trusts holding an array of liquid and publicly traded marketable securities, this duty to diversify can be at great odds with the goals of family business owners who wish to use trusts to plan their estates or to maintain closely held ownership and perpetuation of the family businesses.

First let's discuss some ideas for solving, or at least mitigating, the trust law problems that can arise for a trustee seeking to oblige with family desires to maintain concentrated holdings of a family business. Then, let's review why these approaches are so necessary.

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