The Prudent Investor Rule and What It Means for Those With Power of Attorney
Individuals who have power of attorney — known as “attorneys in fact” or “agents” — often wield an extraordinary amount of power over their principals. This can include both their bodies and their finances, depending upon which type of power of attorney the principal grants to the attorney in fact. With such potentially wide-ranging authority, attorneys in fact are bound by a fiduciary obligation to their principals. This extends to the their management of the principals’ finances through Missouri’s “prudent investor rule,” as explained by our attorneys who handle Springfield power of attorney issues.
Missouri’s Prudent Investor Rule
Missouri’s prudent investor rule applies to trustees who manage trust assets and to attorneys in fact who manage the property and affairs of others. The rule generally requires attorneys in fact who have been granted the authority to invest funds to exercise reasonable care, skill, and caution when doing so. This includes:
- Finding an appropriate balance of risks and returns
- Diversifying the investments (unless it would be more prudent not to diversify)
- Only incurring costs that are appropriate and reasonable in relation to the assets
Specifically, it directs attorneys in fact to consider the following factors when making investment decisions:
- General economic conditions
- The effects of inflation and deflation
- Tax consequences of the investment
- The role each investment plays within the overall portfolio
- The expected total return from income and the appreciation of capital
- Other resources of the principal that are known to the attorney in fact
- Needs for liquidity, regularity of income, and preservation or appreciation of capital
- An asset’s special relationship or value to the principal
- The size of the portfolio, the nature and estimated duration of the fiduciary instrument, and the distribution requirements under the governing instrument
While there are no specific financial qualifications required to exercise power of attorney as part of an estate plan, attorneys in fact who have special skills or expertise are required to use those skills or expertise when investing and managing the principal’s assets.
Does the Prudent Investor Rule Mean that Attorneys in Fact Can Be Held Liable for Unsuccessful Investments?
The prudent investor rule imposes a standard of conduct upon attorneys in fact but does not contemplate a specific outcome or performance. In other words, it does not require all of the attorney in fact’s investments to succeed or punish attorneys in fact who make unsuccessful investments. All investments carry a certain amount of risk, and there is no guarantee that a particular investment will deliver the results the attorney in fact or principal wants. So long as the attorney in fact acted with reasonable skill, care, and caution, as well as considered the relevant factors, his or her actions fall within the prudent investor rule.
Make Sure You Understand Your Duties as an Attorney in Fact with Help from Our Springfield Power of Attorney Lawyers
Exercising power of attorney can be a monumental burden, particularly where the principal’s assets are substantial. The best way to avoid a misstep is to make sure you understand your duties as an attorney in fact. For more information, please contact the Springfield power of attorney lawyers at LifeGen Law Group by calling 417-823-9898 or using our online contact form.