This blog has been written by Robert Boyd, Scotia Wealth Management
When acting as Trustee, in most cases it’s advisable to consult an investment specialist to select the investments. The practical reason for doing so is to limit personal liability and ensure the assets are invested in a suitable way, considering the parameters of the trust agreement, legislation and the common law.
Throughout Canada, as outlined in the applicable provincial trustee acts, the standard of care expected of a trustee when investing the trust fund is that of a prudent person or prudent investor.
A truly prudent approach considers a detailed IPS in consultation between the trustee and the investment specialist considering the following:
- The terms of the Trust and any special or unique investment powers or restrictions;
- The investment horizon, and the possible effect of inflation or deflation;
- The need for liquidity, regularity of income, preservation or appreciation of capital;
- The degree of risk tolerance, where risk is defined as the likelihood of a future investment loss, including the degree of uncertainty regarding the timing and predictability of investment returns;
- Tax consequences of investment decisions or strategies;
- Application of the even-hand rule (consideration of the interests of both current and successor beneficiaries)
Once the investment objective has been established, the underlying asset classes can be considered to create an appropriate portfolio.
Cash, fixed income and equities are the traditional asset classes used, however, any asset of monetary value could be considered as part of a portfolio.
Similar to a Will or trust agreement, a well drafted IPS can assist with acting in the best interest of the beneficiaries. It also protects the trustee from future issues and trustee liability.