ÿWPCe ‘P%cvÒ:ï¾BÇdÊ[R?ÇX«bÓUÌ)ïß¡[èir±9â&qi#DÙý¬Î´hÅßküÔ®!yèW>Ž¥b9^¢ë$ä#w·ôÍe×ò›þîÄŽF¥•,(…R…+”3-qeÄ칚€P&Ö,;Äç¸8°Äûîiû‘þ^Ic˜3òbkRBƒWÿõ hhN² xy.åEÛ?¿Œ²ø$n½gYáû~½Ç‚ÇÁþºeëÚ::¸ªÛœý¦¥„Å,´ŸÑÔm^ßûÜ0F¶O¾f-2u­9ùŸT.n `âQîVÑÞcRÏ9ÓôÕ_ì(‹’+᜛Q(¬pVCM{áb×H{ä‚~  6È$(Qó¾™>]ãì¹öâ êì jn“^•¥=—e¢›+^]Ê)>“ÊnU¾–xQ8ÊòFƒ™¦âhÅßyV£ú÷äî·8ò…%ÑÖÓ&ÄÌJ- éïx³b„3o‹nåŠþItøþs5SûÿðE{Šæû¤ó%óJ´'\‚Ñî,~߈_†–"Í:ÞU²…<ÚÒA7wýtÔ6‘€vQ´}ºùƒD–­Ii#Á¾UAN %Í 0:Ó U-N U>[ w™ 4 ^ ± ½ Ì mÎ Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î Î 0Vå å å å å å 00; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; ; 0Ak k k k k k B¬ ¬ 0&TÉ 0h 0|… 0V     W úk ˜0&Öd9 Z‹6Times New Roman RegularX(üœ$¡¡ÔUSUS.,Ô(ÖÃ9 Z ‹6Times New Roman Regularô\  `‹&Times New RomanSyÍ.ê:i¢×+00´é. 3|xÿU‹ÿÀÀÀ(.3½Þ$§§Ý ƒüœ!ÝÔUSUS.,ÔÝ  Ý0ÿÿ.Normal(Vm$˜˜Ìà0  àà ° à d(,!ù$™™à0  àà0` (#(#àà  à(@›‚$ššà0  àà0` (#(#àà0¸ ` (#` (#àà ` à(TÅþ$››à0  àà0` (#(#àà0¸ ` (#` (#àà0¸ (#¸ (#àà ¸ à(.3½Þ$©©Ý ƒüœ!ÝÔUSUS.,ÔÝ  ÝX`ab ðÝ ƒc½Þ)ÝÔUSUS.,ÔÝ  ÝÔ_Ôò òÔ‡ô‹W òXXÔThe€Uniform€Prudent€Investor€Act€of€Texas€ð!ð€With€Commentsà€X!X!E(#àPage€Ú  Ú1Ú  ÚÔ#†X7íX òô‹W@#Ôó óÝ ƒüœ!ÝÔUSUS.,ÔÝ  ÝÔ_ÔÌÌÌÌà@ìàò òÔ‡ ýXXÔTHE€UNIFORM€PRUDENT€INVESTOR€ACT€OF€TEXASÔ#†X7íX ýV#ԈР˜è ÐÌà@  ìàAs€Enacted€by€the€78òòthóó€Texas€Legislature€(2003)ˆÐ Ë  ÐÌà@ÅÅìàEffective€January€1,€2004ó óˆÐ ¿  ÐÌÌÌÌÌÌÌà@ââìàò òWith€the€Official€Comments€of€ˆÐ ß ÐÌà@ÿÿ ìàThe€National€Conference€of€Commissioners€on€Uniform€State€LawsˆÐ ƒÓ ÐÌà@VV)ìàandˆÐ wÇ ÐÌà@ ìàThe€Real€Estate,€Probate€and€Trust€Law€SectionˆÐ k» Ðà@ÐÐìàof€the€State€Bar€of€Texasó óˆÐ eµ ÐÌÌÔ‡Â>ÂXX7íÔÓ  ÓThe€comments€and€prefatory€note€to€the€Uniform€Prudent€Investor€Act€are€copyrightedÐ S£ Ѐðð€1994€by€the€National€Conference€of€Commissioners€on€Uniform€State€Laws.€€Used€with€permission.Ô#†X7íXÂÂ>ú#ÔÐ l ÐÓÓÌÌÌò òÓ  ÓòòÌóóJune€2003òòó óÐ ¢$ò  ÐÌóóò òó óÐ  k'»"" ÐÑ m ÑÐ  ° ÐÓ?Óà@  "ìàÔ‡ ýXX7íÔò òTable€of€Contentsó óÔ#†X7íX ýÝ#ԈР° ÐÌÓ€gÝ ÓÓ  ÓÝ‚XVmÿÝÌÝ  ÝÝ‚XVmiÝà0  àà ° àÝ  ÝINTRODUCTIONà‚#Ä"Ä"J(#.ƒ ƒ (#(##à1݃XVmi…ÝŒˆÐ Ý- ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVm%Ýà0  àà ° àÝ  ÝUNIFORM€ACT€PREFATORY€NOTEà‚#Ä"Ä"J(#.ÓÓ$(#(##à3݃XVm%AÝŒˆÐ Ñ ! ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVmïÝà0  àà ° àÝ  ÝTEXAS€TRUST€CODE€CHAPTER€117.€UNIFORM€PRUDENT€INVESTOR€ACTà‚#Ä"Ä"J(#.>>D(#(##à6݃XVmï ÝŒˆÐ Å  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùÙÝà0  àà0` (#(#àà  àÝ  ÝSec.€117.001.€SHORT€TITLE.à‚#Ä"Ä"J(#.aa)` (#` (##à6݃`!ùÙôÝŒˆÐ ¿  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù¶Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.002.€UNIFORMITY€OF€APPLICATION€AND€CONSTRUCTION.à‚#Ä"Ä"J(#.H` (#` (##à6݃`!ù¶ÑÝŒˆÐ ¹  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù² Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.003.€PRUDENT€INVESTOR€RULE.à‚#Ä"Ä"J(#.993` (#` (##à6݃`!ù² Í ÝŒˆÐ ³  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù™ Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.004.€STANDARD€OF€CARE;€PORTFOLIO€STRATEGY;€RISK€AND€RETURNÐ ­ý  ÐOBJECTIVES.à‚#Ä"Ä"J(#.` (#` (##à7݃`!ù™ ´ ÝŒˆÐ §÷  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù¿ Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.005.€DIVERSIFICATION.à‚#`"`"I(#.>>-` (#` (##à11݃`!ù¿ Ú ÝŒˆÐ ¡ñ  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù¡ Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.006.€DUTIES€AT€INCEPTION€OF€TRUSTEESHIP.à‚#`"`"I(#.!!@` (#` (##à13݃`!ù¡ ¼ ÝŒˆÐ ›ë  ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù– Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.007.€LOYALTY.à‚#`"`"I(#.44%` (#` (##à13݃`!ù– ± ÝŒˆÐ •å ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùpÝà0  àà0` (#(#àà  àÝ  ÝSec.€117.008.€IMPARTIALITY.à‚#`"`"I(#.øø*` (#` (##à14݃`!ùp‹ÝŒˆÐ ß ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùOÝà0  àà0` (#(#àà  àÝ  ÝSec.€117.009.€INVESTMENT€COSTS.à‚#`"`"I(#.++.` (#` (##à15݃`!ùOjÝŒˆÐ ‰Ù ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù2Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.010.€REVIEWING€COMPLIANCE.à‚#`"`"I(#.--2` (#` (##à15݃`!ù2MÝŒˆÐ ƒÓ ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ùÝà0  àà0` (#(#àà  àÝ  ÝSec.€117.011.€DELEGATION€OF€INVESTMENT€AND€MANAGEMENT€FUNCTIONS.€Ð }Í Ðà‚#`"`"I(#.` ` ` (#` (##à15݃`!ù4ÝŒˆÐ wÇ ÐŒÝ  ÝÝ‚`!ùÿÝÝ  ÝÝ‚`!ù4Ýà0  àà0` (#(#àà  àÝ  ÝSec.€117.012.€LANGUAGE€INVOKING€STANDARD€OF€CHAPTER.à‚#`"`"I(#.C` (#` (##à19݃`!ù4OÝŒˆÐ qÁ ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVm,Ýà0  àà ° àÝ  ÝEFFECTIVE€DATE€PROVISIONà‚#`"`"I(#.,,"(#(##à21݃XVm,HÝŒˆÐ eµ ÐŒÝ  ÝÝ‚XVmÿÝÌÝ  ÝÝ‚XVmõÝà0  àà ° àÝ  Ý݃XVmõ݌Р(#(# ÐŒÝ  ÝÓ ]ÓÐ  S£ ÐÑ m ÑÐ  ° ÐØØÖ€hÿÿÖà@õõ$ìàò òÔ‡ ýXX7íÔÔ  ÔINTRODUCTIONó óÔ#†X7íX ý#ÔÔ Ý 'ԈР° ÐÌÔ‡& J %XX7íÔà  àThe€78òòthóó€Texas€Legislature€enacted€a€Texas€version€of€the€Uniform€Prudent€Investor€Act€ofÐ ã3 Ð1994.€€HB€2240€becomes€effective€January€1,€2004.€€This€legislation€was€part€of€the€2003€legislativeÐ Ä Ðpackage€of€the€Real€Estate,€Probate€and€Trust€Law€Section€of€the€State€Bar€of€Texas.€€The€SectionÐ ¥õ Ðstudied€three€uniform€acts€promulgated€by€the€National€Conference€of€Commissioners€on€Uniform€StateÐ † Ö ÐLaws€(Ô_ÔNCCUSLÔ_Ô)€ð!ð€the€Uniform€Prudent€Investor€Act€of€1994,€the€Uniform€Principal€and€Income€Act€ofÐ g · Ð1997€and€the€Uniform€Trust€Code€of€2000€ð!ð€for€more€than€two€years.€€The€Section€urged€the€adoption€ofÐ H ˜ ÐTexas€versions€of€two€of€those€acts€ð!ð€Prudent€Investor€and€Principal€and€Income€ð!ð€in€2003,€and€bothÐ ) y Ðwere€enacted€into€law.Ð  Z  ÐÌà  àFollowing€are€the€provisions€of€the€Uniform€Prudent€Investor€Act€of€1994€(the€ð ðActðð)€as€enactedÐ Ì  Ðin€Texas,€the€official€Ô_ÔNCCUSLÔ_Ô€notes€and€comments€to€the€Act€and€each€section€of€the€Act€(identified€asÐ ­ý  Ðð ðUniform€Act€Notesðð€or€ð ðUniform€Act€Commentsðð)€and€the€official€comments€of€the€Real€Estate,Ð ŽÞ  ÐProbate€and€Trust€Law€Section€of€the€State€Bar€of€Texas€(the€ð ðSectionðð)€on€the€Texas€variations€of€theÐ o¿  ÐAct€(identified€as€ð ðTexas€Bar€Commentsðð).Ô#†X7íX %& J#ÔÐ P   ÐÐ  1 ÐÑ € ÑÐ  ° ÐÔ‡X7íXXX7íÔà@i i ìàò òÔ‡ ýXX7íÔÔ  ÔUNIFORM€ACT€PREFATORY€NOTEÔ Ý jÔÔ#†X7íX ýK#Ôó óˆÐ ° ÐÌÔ‡& J %XX7íÔà  àOver€the€quarter€century€from€the€late€1960ððs€the€investment€practices€of€fiduciaries€experiencedÐ ã3 Ðsignificant€change.€€The€Uniform€Prudent€Investor€Act€(Ô_ÔUPIAÔ_Ô)€undertakes€to€update€trust€investment€lawÐ Ä Ðin€recognition€of€the€alterations€that€have€occurred€in€investment€practice.€€These€changes€have€occurredÐ ¥õ Ðunder€the€influence€of€a€large€and€broadly€accepted€body€of€empirical€and€theoretical€knowledge€aboutÐ † Ö Ðthe€behavior€of€capital€markets,€often€described€as€ð ðmodern€portfolio€theory.ððÐ g · ÐÌà  àThis€Act€draws€upon€the€revised€standards€for€prudent€trust€investment€promulgated€by€theÐ ) y ÐAmerican€Law€Institute€in€its€Restatement€(Third)€of€Trusts:€Prudent€Investor€Rule€(1992)€[hereinafterÐ  Z  ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule;€also€referred€to€as€1992€Restatement].Ð ë ;  ÐÌà  àò òObjectives€of€the€Act.ó ó€€Ô_ÔUPIAÔ_Ô€makes€five€fundamental€alterations€in€the€former€criteria€forÐ ­ý  Ðprudent€investing.€€All€are€to€be€found€in€the€Restatement€of€Trusts€3d:€Prudent€Investor€Rule.Ð ›ë  ÐÌà  àà ` à(1)€€The€standard€of€prudence€is€applied€to€any€investment€as€part€of€the€total€portfolio,Ð ]­  Ðrather€than€to€individual€investments.€€In€the€trust€setting€the€term€ð ðportfolioðð€embraces€all€the€trustððsÐ >Ž Ðassets.€Ô_ÔUPIAÔ_Ô€ðð2(b)€[Texas€Trust€Code€ðð€117.004(b)].Ð o ÐÌà  àà ` à(2)€€The€tradeoff€in€all€investing€between€risk€and€return€is€identified€as€the€fiduciaryððsÐ á1 Ðcentral€consideration.€€Ô_ÔUPIAÔ_Ô€ðð2(b)€[Texas€Trust€Code€ðð€117.004(b)]Ô#†& J % %& J#ÔÔ‡& J % %& JÔ.Ð Â ÐÌà  àà ` à(3)€€All€categoric€restrictions€on€types€of€investments€have€been€abrogated;€the€trusteeÐ „Ô Ðcan€invest€in€anything€that€plays€an€appropriate€role€in€achieving€the€risk/return€objectives€of€the€trust€andÐ eµ Ðthat€meets€the€other€requirements€of€prudent€investing.€€Ô_ÔUPIAÔ_Ô€ðð2(e)€[Texas€Trust€Code€ðð€117.004(e)].Ô#†& J % %& J$#ÔÔ‡& J % %& JÔÐ F– ÐÌà  àà ` à(4)€€The€long€familiar€requirement€that€fiduciaries€diversify€their€investments€has€beenÐ X Ðintegrated€into€the€definition€of€prudent€investing.€€Ô_ÔUPIAÔ_Ô€ðð3€[Texas€Trust€Code€ðð€117.005]Ô#†& J % %& J|&#ÔÔ‡& J % %& JÔ.Ð é9 ÐÌà  àà ` à(5)€€The€much€criticized€former€rule€of€trust€law€forbidding€the€trustee€to€delegateÐ «û Ðinvestment€and€management€functions€has€been€reversed.€€Delegation€is€now€permitted,€subject€toÐ ŒÜ Ðsafeguards.€€Ô_ÔUPIAÔ_Ô€ðð9€[Texas€Trust€Code€ðð€117.011]Ô#†& J % %& JÚ'#ÔÔ‡& J % %& JÔ.Ð m ½ ÐÌà  àò òLiteratureó ó.€€These€changes€in€trust€investment€law€have€been€presaged€in€an€extensive€body€ofÐ /"! Ðpractical€and€scholarly€writing.€€See€especially€the€discussion€and€reporterððs€notes€by€Edward€C.€Ô_ÔHalbachÔ_Ô,Ð #m" ÐJr.,€in€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€(1992);€see€also€Edward€C.€Ô_ÔHalbachÔ_Ô,€Jr.,€TrustÐ þ#N# ÐInvestment€Law€in€the€Third€Restatement,€27€Real€Property,€Probate€&€Trust€J.€407€(1992);€Ô_ÔBevisÔ_ÔÐ ß$/ $ ÐÔ_ÔLongstrethÔ_Ô,€Modern€Investment€Management€and€the€Prudent€Man€Rule€(1986);€Jeffrey€N.€Gordon,€TheÐ À%!% ÐPuzzling€Persistence€of€the€Constrained€Prudent€Man€Rule,€62€Ô_ÔN.Y.U.L.Ô_Ô€Rev.€52€(1987);€John€H.Ð ¡&ñ!& ÐÔ_ÔLangbeinÔ_Ô€&€Richard€A.€Ô_ÔPosnerÔ_Ô,€The€Revolution€in€Trust€Investment€Law,€62€Ô_ÔA.B.A.J.Ô_Ô€887€(1976);€Note,Ð ‚'Ò"' ÐThe€Regulation€of€Risky€Investments,€83€Harvard€L.€Rev.€603€(1970).€€A€succinct€account€of€the€mainÐ c(³#( Ðfindings€of€modern€portfolio€theory,€written€for€lawyers,€is€Jonathan€R.€Ô_ÔMaceyÔ_Ô,€An€Introduction€to€ModernÐ D)”$) ÐFinancial€Theory€(1991)€(American€College€of€Trust€&€Estate€Counsel€Foundation).€€A€leadingÐ %*u%* Ðintroductory€text€on€modern€portfolio€theory€is€R.A.€Ô_ÔBrealeyÔ_Ô,€An€Introduction€to€Risk€and€Return€fromÐ +V&+ ÐCommon€Stocks€(2d€ed.€1983).Ð ç+7', Їà  àò òLegislationó ó.€€Most€states€have€legislation€governing€trust„investment€law.€€This€Act€promotesÐ ° Ðuniformity€of€state€law€on€the€basis€of€the€new€consensus€reflected€in€the€Restatement€of€Trusts€3d:Ð žî ÐPrudent€Investor€Rule.€€Some€states€have€already€acted.€€California,€Delaware,€Georgia,€Minnesota,Ð Ï ÐTennessee,€and€Washington€revised€their€prudent€investor€legislation€to€emphasize€the€total„portfolioÐ `° Ðstandard€of€care€in€advance€of€the€1992€Restatement.€€These€statutes€are€extracted€and€discussed€inÐ A‘ ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€reporterððs€note,€at€60-66€(1992).Ð " r ÐÌà  àDrafters€in€Illinois€in€1991€worked€from€the€April€1990€ð ðProposed€Final€Draftðð€of€theÐ ä 4 ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule€and€enacted€legislation€that€is€closely€modeled€on€theÐ Å  Ðnew€Restatement.€€760€Ô_ÔILCSÔ_Ô€ðð5/5€(prudent€investing);€and€ðð5/5.1€(delegation)€(1992).€€As€theÐ ¦ ö  ÐComments€to€this€Uniform€Prudent€Investor€Act€reflect,€the€Act€draws€upon€the€Illinois€statute€in€severalÐ ‡ ×  Ðsections.€€Virginia€revised€its€prudent€investor€act€in€a€similar€vein€in€1992.€€Virginia€Code€ðð26-45.1Ð h¸  Ð(prudent€investing)€(1992).€€Florida€revised€its€statute€in€1993.€€Florida€Laws,€ch.€93-257,€amending€FloridaÐ I™  ÐStatutes€ðð518.11€(prudent€investing)€and€creating€ðð518.112€(delegation).€€New€York€legislation€drawingÐ *z  Ðon€the€new€Restatement€and€on€a€preliminary€version€of€this€Uniform€Prudent€Investor€Act€was€enactedÐ  [  Ðin€1994.€€N.Y.€Assembly€Bill€11683„B,€Ch.€609€(1994),€adding€Estates,€Powers€and€Trusts€Law€ðð11-2.3Ð ì<  Ð(Prudent€Investor€Act).Ð Í ÐÌà  àò òRemedies.ó ó€€This€Act€does€not€undertake€to€address€issues€of€remedy€law€or€the€computation€ofÐ ß Ðdamages€in€trust€matters.€€Remedies€are€the€subject€of€a€reasonably€distinct€body€of€doctrine.€€SeeÐ }Í Ðgenerally€Restatement€(Second)€of€Trusts€ðððð197-226A€(1959)€[hereinafter€cited€as€Restatement€ofÐ ^® ÐTrusts€2d;€also€referred€to€as€1959€Restatement].Ð ? ÐÌà  àò òImplications€for€charitable€and€pension€trustsó ó.€€This€Act€is€centrally€concerned€with€theÐ Q Ðinvestment€responsibilities€arising€under€the€private€gratuitous€trust,€which€is€the€common€vehicle€forÐ ï? Ðconditioned€wealth€transfer€within€the€family.€€Nevertheless,€the€prudent€investor€rule€also€bears€onÐ Ð  Ðcharitable€and€pension€trusts,€among€others.€€ð ðIn€making€investments€of€trust€funds€the€trustee€of€aÐ ± Ðcharitable€trust€is€under€a€duty€similar€to€that€of€the€trustee€of€a€private€trust.ðð€€Restatement€of€Trusts€2dÐ ’â Ððð389€(1959).€€The€Employee€Retirement€Income€Security€Act€(Ô_ÔERISAÔ_Ô),€the€federal€regulatory€schemeÐ sà Ðfor€pension€trusts€enacted€in€1974,€absorbs€trust„investment€law€through€the€prudence€standard€of€Ô_ÔERISAÔ_ÔÐ T¤ Ððð404(a)(1)(B),€29€U.S.C.€ðð1104(a).€€The€Supreme€Court€has€said:€ð ðÔ_ÔERISAÔ_Ôððs€legislative€history€confirmsÐ 5… Ðthat€the€Actððs€fiduciary€responsibility€provisions€ððÔ_Ôcodif[yÔ_Ô]€and€Ô_Ômak[eÔ_Ô]€applicable€to€[Ô_ÔERISAÔ_Ô]€fiduciariesÐ  f Ðcertain€principles€developed€in€the€evolution€of€the€law€of€trusts.ðððð€€òòFirestone€Tire€&€Rubber€Co.€v.Ð ÷ G  ÐÔ_ÔBruchÔ_Ôóó,€489€U.S.€101,€110-11€(1989)€(footnote€omitted).Ð Ø!(! ÐÌà  àò òOther€fiduciary€relationshipsó ó.€€The€Uniform€Prudent€Investor€Act€regulates€the€investmentÐ š#ê# Ðresponsibilities€of€trustees.€€Other€fiduciariesð!ð€such€as€executors,€conservators,€and€guardians€of€theÐ ˆ$Ø$ Ðpropertyð!ð€sometimes€have€responsibilities€over€assets€that€are€governed€by€the€standards€of€prudentÐ i%¹ % Ðinvestment.€€It€will€often€be€appropriate€for€states€to€adapt€the€law€governing€investment€by€trustees€underÐ J&š!& Ðthis€Act€to€these€other€fiduciary€regimes,€taking€account€of€such€changed€circumstances€as€the€relativelyÐ +'{"' ÐÔ_Ôshort€duration€of€most€executorships€and€the€intensity€of€court€supervision€of€conservators€and€guardiansÐ  (\#( Ðin€some€jurisdictions.€€The€present€Act€does€not€undertake€to€adjust€trust„investment€law€to€the€specialÐ í(=$) Ðcircumstances€of€the€state€schemes€for€administering€decedentsðð€estates€or€conducting€the€affairs€ofÐ Î)%* Ðprotected€persons.Ð ¯*ÿ%+ ÐÐ +à&, Ðà  àAlthough€the€Uniform€Prudent€Investor€Act€by€its€terms€applies€to€trusts€and€not€to€charitableÐ ° Ðcorporations,€the€standards€of€the€Act€can€be€expected€to€inform€the€investment€responsibilities€ofÐ ‘á Ðdirectors€and€officers€of€charitable€corporations.€€As€the€1992€Restatement€observes,€ð ðthe€duties€of€theÐ r Ðmembers€of€the€governing€board€of€a€charitable€corporation€are€generally€similar€to€the€duties€of€theÐ S£ Ðtrustee€of€a€charitable€trust.ðð€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð379,€Comment€òòbóó,€at€190Ð 4„ Ð(1992).€€See€also€id.€ðð389,€Comment€òòbóó,€at€190-91€(absent€contrary€statute€or€other€provision,€prudentÐ  e Ðinvestor€rule€applies€to€investment€of€funds€held€for€charitable€corporations).Ð ö F ÐÌÔ#†X7íX %& Já#ÔÔ#†X7íXXX7í€)#ÔÔ‡X7íXXX7íÔÐ  ¸  ÐÔ#†X7íXXX7í»G#ÔÓ  Óò òÔ‡Š‹ˆXX7íÔÔ  ÔTEXAS€TRUST€CODE€CHAPTER€117.€UNIFORM€PRUDENT€INVESTOR€ACTÔ re@HÔó óÐ ° ÐÌÓÓÝ‚.ÿÿÿÝÝ  ÝÔS÷G¤ôÔÝ‚.ÿÿÿÃHÝÝ  ÝÓ  ÓÓÓÔSJš÷GÔÓÓà  àò òÔ  ÔSec.€117.001.€SHORT€TITLE.Ô rebIÔó ó€This€chapter€may€be€cited€as€the€"Uniform€PrudentÐ Jš ÐInvestor€Act."ÓӀ݃.ÿÿÃHóH݌РD” ÐŒÝ  ÝÌà  àÓÓò òÔ  ÔSec.€117.002.€UNIFORMITY€OF€APPLICATION€AND€CONSTRUCTION.Ô re^JÔó ó€ThisÐ 8 ˆ Ðchapter€shall€be€applied€and€construed€to€effectuate€its€general€purpose€to€make€uniformÐ 2 ‚ Ðthe€law€with€respect€to€the€subject€of€this€chapter€among€the€states€enacting€it.ÓÓÐ , | ЀÌÓÓà  àò òÔ  ÔSec.€117.003.€PRUDENT€INVESTOR€RULE.Ô reØKÔó ó€(a)€Except€as€otherwise€provided€inÐ  p  ÐSubsection€(b),€a€trustee€who€invests€and€manages€trust€assets€owes€a€duty€to€theÐ j  Ðbeneficiaries€of€the€trust€to€comply€with€the€prudent€investor€rule€set€forth€in€this€chapter.Ð d  ÐÓÓ€Ìà  àÓÓ(b)€The€prudent€investor€rule,€a€default€rule,€may€be€expanded,€restricted,€eliminated,Ð X  Ðor€otherwise€altered€by€the€provisions€of€a€trust.€A€trustee€is€not€liable€to€a€beneficiary€toÐ R Ðthe€extent€that€the€trustee€acted€in€reasonable€reliance€on€the€provisions€of€the€trust.ÓӀРüL ÐÓÓÌÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹!H#ÔÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ ð@ ÐÌà  àThis€section€imposes€the€obligation€of€prudence€in€the€conduct€of€investment€functions€andÐ ³ Ðidentifies€further€sections€of€the€Act€that€specify€the€attributes€of€prudent€conduct.Ð ”ä ÐÌà  àò òOrigins.ó ó€€The€prudence€standard€for€trust€investing€traces€back€to€òòHarvard€College€v.€Amoryóó,Ð V¦ Ð26€Mass.€(9€Pick.)€446€(1830).€€Trustees€should€ð ðobserve€how€men€of€prudence,€discretion€andÐ D” Ðintelligence€manage€their€own€affairs,€not€in€regard€to€speculation,€but€in€regard€to€the€permanentÐ %u Ðdisposition€of€their€funds,€considering€the€probable€income,€as€well€as€the€probable€safety€of€the€capital€toÐ V Ðbe€invested.ðð€€Id.€at€461.Ð ç7 ÐÌà  àò òPrior€legislation.ó ó€€The€Model€Prudent€Man€Rule€Statute€(1942),€sponsored€by€the€AmericanÐ ©ù ÐBankers€Association,€undertook€to€codify€the€language€of€the€òòAmoryóó€case.€€See€Mayo€A.€Shattuck,€TheÐ — ç ÐDevelopment€of€the€Prudent€Man€Rule€for€Fiduciary€Investment€in€the€United€States€in€the€TwentiethÐ x!È ÐCentury,€12€Ohio€State€L.J.€491,€at€501€(1951);€for€the€text€of€the€model€act,€which€inspired€many€stateÐ Y"© Ðstatutes,€see€id.€at€508-09.€€Another€prominent€codification€of€the€òòAmoryóó€standard€is€Uniform€ProbateÐ :#Š  ÐCode€ðð7-302€(1969),€which€provides€that€ð ðthe€trustee€shall€observe€the€standards€in€dealing€with€the€trustÐ $k! Ðassets€that€would€be€observed€by€a€prudent€man€dealing€with€the€property€of€another€.€.€.€.ððÐ ü$L " ÐÌà  àCongress€has€imposed€a€comparable€prudence€standard€for€the€administration€of€pension€andÐ ¾&"$ Ðemployee€benefit€trusts€in€the€Employee€Retirement€Income€Security€Act€(ERISA),€enacted€in€1974.€Ð Ÿ'ï"% ÐERISA€ðð404(a)(1)(B),€29€U.S.C.€ðð1104(a),€provides€that€ð ða€fiduciary€shall€discharge€his€duties€withÐ €(Ð#& Ðrespect€to€a€plan€solely€in€the€interest€of€the€participants€and€beneficiaries€and€.€.€.€with€the€care,€skill,Ð a)±$' Ðprudence,€and€diligence€under€the€circumstances€then€prevailing€that€a€prudent€man€acting€in€a€likeÐ B*’%( Ðcapacity€and€familiar€with€such€matters€would€use€in€the€conduct€of€an€enterprise€of€like€character€andÐ #+s&) Ðwith€like€aims€.€.€.€.ððÐ ,T'* Їà  àò òPrior€Restatement.ó ó€€The€Restatement€of€Trusts€2d€(1959)€also€tracked€the€language€of€theÐ ° ÐòòAmoryóó€case:€ð ðIn€making€investments€of€trust€funds€the€trustee€is€under€a€duty€to€the€beneficiary€.€.€.€toÐ žî Ðmake€such€investments€and€only€such€investments€as€a€prudent€man€would€make€of€his€own€propertyÐ Ï Ðhaving€in€view€the€preservation€of€the€estate€and€the€amount€and€regularity€of€the€income€to€be€derived€.€.Ð `° Ð.€.ðð€€Restatement€of€Trusts€2d€ðð227€(1959).Ð A‘ ÐÌà  àò òObjective€standard.ó ó€€The€concept€of€prudence€in€the€judicial€opinions€and€legislation€isÐ  S Ðessentially€relational€or€comparative.€€It€resembles€in€this€respect€the€ð ðreasonable€personðð€rule€of€tort€law.€Ð ñ A ÐA€prudent€trustee€behaves€as€other€trustees€similarly€situated€would€behave.€€The€standard€is,€therefore,Ð Ò " Ðobjective€rather€than€subjective.€€Sections€2€through€9€of€this€Act€[Texas€Trust€Code€ðððð117.004€ð!ðÐ ³   Ð117.011]€identify€the€main€factors€that€bear€on€prudent€investment€behavior.Ð ” ä  ÐÌà  àò òVariation.ó ó€€Almost€all€of€the€rules€of€trust€law€are€default€rules,€that€is,€rules€that€the€settlor€mayÐ V¦  Ðalter€or€abrogate.€€Subsection€(b)€carries€forward€this€traditional€attribute€of€trust€law.€€Traditional€trustÐ D”  Ðlaw€also€allows€the€beneficiaries€of€the€trust€to€excuse€its€performance,€when€they€are€all€capable€and€notÐ %u  Ðmisinformed.€€Restatement€of€Trusts€2d€ðð216€(1959).Ð V  ÐÌà@™™"ìàò òTexas€Bar€Commentó óˆÐ È ÐÌÓ XÓAdoption€of€the€prudent€investor€rule€reflects€a€significant€departure€from€prior€Texas€law.€€TheÐ ‹Û Ðprudent€investor€rule€is€the€majority€rule€among€the€states,€so€its€adoption€brings€Texas€in€line€with€theÐ l¼ Ðnational€trend.Ð M ÐÓ XÓÔ#†& J % %& JÍN#ÔÔ‡& J % %& JÔÔ#†X7íX %& JO#ÔÌÔ#†X7íXXX7í'a#ÔÔ‡Š‹ˆXX7íÔà  àò òÔ  ÔSec.€117.004.€STANDARD€OF€CARE;€PORTFOLIO€STRATEGY;€RISK€ANDÐ (x ÐRETURN€OBJECTIVES.Ô un»aÔó ó€(a)€A€trustee€shall€invest€and€manage€trust€assets€as€a€prudentÐ "r Ðinvestor€would,€by€considering€the€purposes,€terms,€distribution€requirements,€and€otherÐ l Ðcircumstances€of€the€trust.€In€satisfying€this€standard,€the€trustee€shall€exercise€reasonableÐ f Ðcare,€skill,€and€caution.ÓӀР` ÐÌà  àÓÓ(b)€A€trustee's€investment€and€management€decisions€respecting€individual€assetsÐ T Ðmust€be€evaluated€not€in€isolation€but€in€the€context€of€the€trust€portfolio€as€a€whole€and€asÐ þN Ða€part€of€an€overall€investment€strategy€having€risk€and€return€objectives€reasonably€suitedÐ ø H Ðto€the€trust.Ð ò!B  ÐÓÓ€Ìà  àÓÓ(c)€Among€circumstances€that€a€trustee€shall€consider€in€investing€and€managingÐ æ#6" Ðtrust€assets€are€such€of€the€following€as€are€relevant€to€the€trust€or€its€beneficiaries:ÓӀРà$0 # ÐÌà  àà ` àÓÓ(1)€general€economic€conditions;ÓӀРÔ&$"% ÐÓÓÌà  àà ` à(2)€the€possible€effect€of€inflation€or€deflation;ÓÓ€ÓÓÐ È($' ÐÌà  àà ` à(3)€the€expected€tax€consequences€of€investment€decisions€or€strategies;ÓӀР¼* &) ÐÓÓÐ ¶+'* Ðà  àà ` à(4)€the€role€that€each€investment€or€course€of€action€plays€within€the€overallÐ ° Ðtrust€portfolio,€which€may€include€financial€assets,€interests€in€closely€held€enterprises,Ð ªú Ðtangible€and€intangible€personal€property,€and€real€property;ÓӀР¤ô ÐÌà  àà ` àÓÓ(5)€the€expected€total€return€from€income€and€the€appreciation€of€capital;ÓÓ€ÓÓÐ ˜è ÐÌà  àà ` à(6)€other€resources€of€the€beneficiaries;ÓÓÐ Œ Ü ЀÓÓÌà  àà ` à(7)€needs€for€liquidity,€regularity€of€income,€and€preservation€or€appreciationÐ € Ð Ðof€capital;€andÓӀРz Ê  ÐÌà  àà ` àÓÓ(8)€an€asset's€special€relationship€or€special€value,€if€any,€to€the€purposes€ofÐ n¾  Ðthe€trust€or€to€one€or€more€of€the€beneficiaries.ÓӀРh¸  ÐÌà  àÓÓ(d)€A€trustee€shall€make€a€reasonable€effort€to€verify€facts€relevant€to€the€investmentÐ \¬  Ðand€management€of€trust€assets.ÓӀРV¦ ÐÓÓÌà  à(e)€Except€as€otherwise€provided€by€and€subject€to€this€subtitle,€a€trustee€may€investÐ Jš Ðin€any€kind€of€property€or€type€of€investment€consistent€with€the€standards€of€this€chapter.Ð D” ÐÓÓ€ÓÓÌà  à(f)€A€trustee€who€has€special€skills€or€expertise,€or€is€named€trustee€in€reliance€uponÐ 8ˆ Ðthe€trustee's€representation€that€the€trustee€has€special€skills€or€expertise,€has€a€duty€to€useÐ 2‚ Ðthose€special€skills€or€expertise.ÓÓ€ÓÓÐ ,| ÐÌÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹a#Ôà@NN!ìàò òÔ‡& J %XX7íÔUniform€Act€Commentó óˆÐ  p ÐÌà  àSection€2€[Texas€Trust€Code€ðð117.004]€is€the€heart€of€the€Act.€€Subsections€(a),€(b),€and€(c)€areÐ ã3 Ðpatterned€loosely€on€the€language€of€the€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227€(1992),Ð Ä Ðand€on€the€1991€Illinois€statute,€760€ððILCS€5/5a€(1992).€€Subsection€(f)€is€derived€from€Uniform€ProbateÐ ¥õ ÐCode€ðð7-302€(1969).Ð † Ö ÐÌà  àò òObjective€standard.ó ó€€Subsection€(a)€of€this€Act€carries€forward€the€relational€and€objectiveÐ H"˜ Ðstandard€made€familiar€in€the€òòAmoryóó€case,€in€earlier€prudent€investor€legislation,€and€in€the€Restatements.€Ð 6#†  ÐEarly€formulations€of€the€prudent€person€rule€were€sometimes€troubled€by€the€effort€to€distinguishÐ $g! Ðbetween€the€standard€of€a€prudent€person€investing€for€another€and€investing€on€his€or€her€own€account.€Ð ø$H " ÐThe€language€of€subsection€(a),€by€relating€the€trusteeððs€duty€to€ð ðthe€purposes,€terms,€distributionÐ Ù%)!# Ðrequirements,€and€other€circumstances€of€the€trust,ðð€should€put€such€questions€to€rest.€€The€standard€is€theÐ º& "$ Ðstandard€of€the€prudent€investor€similarly€situated.Ð ›'ë"% ÐÌà  àò òPortfolio€standard.ó ó€€Subsection€(b)€emphasizes€the€consolidated€portfolio€standard€for€evaluatingÐ ])­$' Ðinvestment€decisions.€€An€investment€that€might€be€imprudent€standing€alone€can€become€prudent€ifÐ K*›%( Ðundertaken€in€sensible€relation€to€other€trust€assets,€or€to€other€nontrust€assets.€€In€the€trust€setting€theÐ ,+|&) Ðterm€ð ðportfolioðð€embraces€the€entire€trust€estate.Ð  ,]'* Їà  àò òRisk€and€returnó ó.€€Subsection€(b)€also€sounds€the€main€theme€of€modern€investment€practice,Ð ° Ðsensitivity€to€the€risk/return€curve.€€See€generally€the€works€cited€in€the€Prefatory€Note€to€this€Act,€underÐ žî Ðð ðLiterature.ðð€€Returns€correlate€strongly€with€risk,€but€tolerance€for€risk€varies€greatly€with€the€financialÐ Ï Ðand€other€circumstances€of€the€investor,€or€in€the€case€of€a€trust,€with€the€purposes€of€the€trust€and€theÐ `° Ðrelevant€circumstances€of€the€beneficiaries.€€A€trust€whose€main€purpose€is€to€support€an€elderly€widowÐ A‘ Ðof€modest€means€will€have€a€lower€risk€tolerance€than€a€trust€to€accumulate€for€a€young€scion€of€greatÐ " r Ðwealth.Ð  S ÐÌà  àSubsection€(b)€of€this€Act€follows€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227(a),Ð Å  Ðwhich€provides€that€the€standard€of€prudent€investing€ð ðrequires€the€exercise€of€reasonable€care,€skill,€andÐ ¦ ö  Ðcaution,€and€is€to€be€applied€to€investments€not€in€isolation€but€in€the€context€of€the€trust€portfolio€and€as€aÐ ‡ ×  Ðpart€of€an€overall€investment€strategy,€which€should€incorporate€risk€and€return€objectives€reasonablyÐ h¸  Ðsuitable€to€the€trust.ððÐ I™  ÐÌà  àò òFactors€affecting€investment.ó ó€€Subsection€(c)€points€to€certain€of€the€factors€that€commonlyÐ  [  Ðbear€on€risk/return€preferences€in€fiduciary€investing.€€This€listing€is€nonexclusive.€€Tax€considerations,Ð ùI  Ðsuch€as€preserving€the€stepped€up€basis€on€death€under€Internal€Revenue€Code€ðð1014€for€low„basisÐ Ú* Ðassets,€have€traditionally€been€exceptionally€important€in€estate€planning€for€affluent€persons.€€Under€theÐ »  Ðpresent€recognition€rules€of€the€federal€income€tax,€taxable€investors,€including€trust€beneficiaries,€are€inÐ œì Ðgeneral€best€served€by€an€investment€strategy€that€minimizes€the€taxation€incident€to€portfolio€turnover.€Ð }Í ÐSee€generally€Robert€H.€Jeffrey€&€Robert€D.€Arnott,€Is€Your€Alpha€Big€Enough€to€Cover€Its€Taxes?,Ð ^® ÐJournal€of€Portfolio€Management€15€(Spring€1993).Ð ? ÐÌà  àAnother€familiar€example€of€how€tax€considerations€bear€upon€trust€investing:€€In€a€regime€ofÐ Q Ðpass„through€taxation,€it€may€be€prudent€for€the€trust€to€buy€lower€yielding€tax„exempt€securities€for€high„Ð â2 Ðbracket€taxpayers,€whereas€it€would€ordinarily€be€imprudent€for€the€trustees€of€a€charitable€trust,€whoseÐ Ã Ðincome€is€tax€exempt,€to€accept€the€lowered€yields€associated€with€tax„exempt€securities.Ð ¤ô ÐÌà  àWhen€tax€considerations€affect€beneficiaries€differently,€the€trusteeððs€duty€of€impartiality€requiresÐ f¶ Ðattention€to€the€competing€interests€of€each€of€them.Ð G— ÐÌà  àSubsection€(c)(8),€allowing€the€trustee€to€take€into€account€any€preferences€of€the€beneficiariesÐ  Y Ðrespecting€heirlooms€or€other€prized€assets,€derives€from€the€Illinois€act,€760€ILCS€ðð5/5(a)(4)€(1992).Ð ê :  ÐÌà  àò òDuty€to€monitor.ó ó€€Subsections€(a)€through€(d)€apply€both€to€investing€and€managing€trust€assets.€Ð ¬"ü" Ðð ðManagingðð€embraces€monitoring,€that€is,€the€trusteeððs€continuing€responsibility€for€oversight€of€theÐ š#ê# Ðsuitability€of€investments€already€made€as€well€as€the€trusteeððs€decisions€respecting€new€investments.Ð {$Ë$ ÐÌà  àò òDuty€to€investigateó ó.€€Subsection€(d)€carries€forward€the€traditional€responsibility€of€the€fiduciaryÐ =&!& Ðinvestor€to€examine€information€likely€to€bear€importantly€on€the€value€or€the€security€of€an€investmentð!ðÐ +'{"' Ðfor€example,€audit€reports€or€records€of€title.€€E.g.,€òòEstate€of€Collinsóó,€72€Cal.€App.€3d€663,€139€Cal.€Rptr.Ð  (\#( Ð644€(1977)€(trustees€lent€on€a€junior€mortgage€on€unimproved€real€estate,€failed€to€have€land€appraised,Ð í(=$) Ðand€accepted€an€unaudited€financial€statement;€held€liable€for€losses).Ð Î)%* ÐÌà  àò òAbrogating€categoric€restrictionsó ó.€€Subsection€2(e)€[Texas€Trust€Code€ðð117.004(e)]€clarifiesÐ +à&, Ðthat€no€particular€kind€of€property€or€type€of€investment€is€inherently€imprudent.€€Traditional€trust€law€wasÐ ° Ðencumbered€with€a€variety€of€categoric€exclusions,€such€as€prohibitions€on€junior€mortgages€or€newÐ ‘á Ðventures.€€In€some€states€legislation€created€so„called€ð ðlegal€listsðð€of€approved€trust€investments.€€TheÐ r Ðuniverse€of€investment€products€changes€incessantly.€€Investments€that€were€at€one€time€thought€tooÐ S£ Ðrisky,€such€as€equities,€or€more€recently,€futures,€are€now€used€in€fiduciary€portfolios.€€By€contrast,€theÐ 4„ Ðinvestment€that€was€at€one€time€thought€ideal€for€trusts,€the€long„term€bond,€has€been€discovered€to€importÐ  e Ða€level€of€risk€and€volatilityð!ð€in€this€case,€inflation€riskð!ð€that€had€not€been€anticipated.€€Accordingly,Ð ö F Ðsection€2(e)€[Texas€Trust€Code€ðð117.004(e)]Ô#†& J % %& J/o#ÔÔ‡& J % %& JÔ€of€this€Act€follows€Restatement€of€Trusts€3d:€PrudentÐ × ' ÐInvestor€Rule€in€abrogating€categoric€restrictions.€€The€Restatement€says:€ð ðSpecific€investments€orÐ ¸  Ðtechniques€are€not€per€se€prudent€or€imprudent.€€The€riskiness€of€a€specific€property,€and€thus€theÐ ™ é  Ðpropriety€of€its€inclusion€in€the€trust€estate,€is€not€judged€in€the€abstract€but€in€terms€of€its€anticipatedÐ z Ê  Ðeffect€on€the€particular€trustððs€portfolio.ðð€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,Ð [«  ÐComment€òòfóó,€at€24€(1992).€€The€premise€of€subsection€2(e)€[Texas€Trust€Code€ðð117.004(e)]Ô#†& J % %& J¶‹#ÔÔ‡& J % %& JÔ€is€that€trustÐ <Œ  Ðbeneficiaries€are€better€protected€by€the€Actððs€emphasis€on€close€attention€to€risk/return€objectives€asÐ m  Ðprescribed€in€subsection€2(b)€[Texas€Trust€Code€ðð117.004(b)]Ô#†& J % %& JšŽ#ÔÔ‡& J % %& JÔ€than€in€attempts€to€identify€categories€ofÐ þN  Ðinvestment€that€are€per€se€prudent€or€imprudent.Ð ß/  ÐÌà  àThe€Act€impliedly€disavows€the€emphasis€in€older€law€on€avoiding€ð ðspeculativeðð€or€ð ðriskyððÐ ¡ñ Ðinvestments.€€Low€levels€of€risk€may€be€appropriate€in€some€trust€settings€but€inappropriate€in€others.€€It€isÐ ‚Ò Ðthe€trusteeððs€task€to€invest€at€a€risk€level€that€is€suitable€to€the€purposes€of€the€trust.Ð c³ ÐÌà  àThe€abolition€of€categoric€restrictions€against€types€of€investment€in€no€way€alters€the€trusteeððsÐ %u Ðconventional€duty€of€loyalty,€which€is€reiterated€for€the€purposes€of€this€Act€in€Section€5€[Texas€TrustÐ V ÐCode€ðð117.007)]Ô#†& J % %& J¾#ÔÔ‡& J % %& JÔ.€€For€example,€were€the€trustee€to€invest€in€a€second€mortgage€on€a€piece€of€realÐ ç7 Ðproperty€owned€by€the€trustee,€the€investment€would€be€wrongful€on€account€of€the€trusteeððs€breach€ofÐ È Ðthe€duty€to€abstain€from€self„dealing,€even€though€the€investment€would€no€longer€automatically€offend€theÐ ©ù Ðformer€categoric€restriction€against€fiduciary€investments€in€junior€mortgages.Ð ŠÚ ÐÌà  àò òProfessional€fiduciaries.ó ó€€The€distinction€taken€in€subsection€(f)€between€amateur€andÐ Lœ Ðprofessional€trustees€is€familiar€law.€€The€prudent€investor€standard€applies€to€a€range€of€fiduciaries,€fromÐ :Š Ðthe€most€sophisticated€professional€investment€management€firms€and€corporate€fiduciaries,€to€familyÐ k Ðmembers€of€minimal€experience.€€Because€the€standard€of€prudence€is€relational,€it€follows€that€theÐ üL Ðstandard€for€professional€trustees€is€the€standard€of€prudent€professionals;€for€amateurs,€it€is€the€standardÐ Ý -  Ðof€prudent€amateurs.€€Restatement€of€Trusts€2d€ðð174€(1959)€provides:€ð ðThe€trustee€is€under€a€duty€to€theÐ ¾!! Ðbeneficiary€in€administering€the€trust€to€exercise€such€care€and€skill€as€a€man€of€ordinary€prudence€wouldÐ Ÿ"ï" Ðexercise€in€dealing€with€his€own€property;€and€if€the€trustee€has€or€procures€his€appointment€as€trustee€byÐ €#Ð# Ðrepresenting€that€he€has€greater€skill€than€that€of€a€man€of€ordinary€prudence,€he€is€under€a€duty€toÐ a$±$ Ðexercise€such€skill.ðð€€Case€law€strongly€supports€the€concept€of€the€higher€standard€of€care€for€the€trusteeÐ B%’ % Ðrepresenting€itself€to€be€expert€or€professional.€€See€Annot.,€Standard€of€Care€Required€of€TrusteeÐ #&s!& ÐRepresenting€Itself€to€Have€Expert€Knowledge€or€Skill,€91€A.L.R.€3d€904€(1979)€&€1992€Supp.€at€48-49.Ð 'T"' ÐÌà  àThe€Drafting€Committee€declined€the€suggestion€that€the€Act€should€create€an€exception€to€theÐ Æ($) Ðprudent€investor€rule€(or€to€the€diversification€requirement€of€Section€3€[Texas€Trust€Code€ðð117.005]Ô#†& J % %& J“#ÔÔ‡& J % %& JÔ)€inÐ §)÷$* Ðthe€case€of€smaller€trusts.€€The€Committee€believes€that€subsections€(b)€and€(c)€of€the€Act€emphasizeÐ ˆ*Ø%+ Ðfactors€that€are€sensitive€to€the€traits€of€small€trusts;€and€that€subsection€(f)€adjusts€helpfully€for€theÐ i+¹&, Ðdistinction€between€professional€and€amateur€trusteeship.€€Furthermore,€it€is€always€open€to€the€settlor€ofÐ J,š'- Ða€trust€under€Section€1(b)€of€the€Act€[Texas€Trust€Code€ðð117.003(b)]€to€reduce€the€trusteeððs€standard€ofÐ ° Ðcare€if€the€settlor€deems€such€a€step€appropriate.€€The€official€comments€to€the€1992€RestatementÐ ‘á Ðobserve€that€pooled€investments,€such€as€mutual€funds€and€bank€common€trust€funds,€are€especiallyÐ r Ðsuitable€for€small€trusts.€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€Comments€òòhóó,€òòmóó,€at€28,Ð S£ Ð51;€reporterððs€note€to€Comment€òògóó,€id.€at€83.Ð 4„ ÐÌà  àò òMatters€of€proofó ó.€€Although€virtually€all€express€trusts€are€created€by€written€instrument,€oralÐ ö F Ðtrusts€are€known,€and€accordingly,€this€Act€presupposes€no€formal€requirement€that€trust€terms€be€inÐ ä 4 Ðwriting.€€When€there€is€a€written€trust€instrument,€modern€authority€strongly€favors€allowing€evidenceÐ Å  Ðextrinsic€to€the€instrument€to€be€consulted€for€the€purpose€of€ascertaining€the€settlorððs€intent.€€SeeÐ ¦ ö  ÐUniform€Probate€Code€ðð2-601€(1990),€Comment;€Restate‚ment€(Third)€of€Property:€Donative€TransfersÐ ‡ ×  Ð(Preliminary€Draft€No.€2,€ch.€11,€Sept.€11,€1992).Ô#†X7íX %& J†o#ÔÐ h¸  ÐÔ#†X7íXXX7íî›#ÔÔ‡Š‹ˆXX7íÔÌà  àò òÔ  ÔSec.€117.005.€DIVERSIFICATION.Ô  £Ôó ó€A€trustee€shall€diversify€the€investments€of€theÐ C“  Ðtrust€unless€the€trustee€reasonably€determines€that,€because€of€special€circumstances,€theÐ =  Ðpurposes€of€the€trust€are€better€served€without€diversifying.ÓÓ€ÓÓÐ 7‡  ÐÌÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹æ¢#ÔÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ +{ ÐÌà  àThe€language€of€this€section€derives€from€Restatement€of€Trusts€2d€ðð228€(1959).€€ERISA€insistsÐ î> Ðupon€a€comparable€rule€for€pension€trusts.€€ERISA€ðð404(a)(1)(C),€29€U.S.C.€ðð1104(a)(1)(C).€€Case€lawÐ Ï Ðoverwhelmingly€supports€the€duty€to€diversify.€€See€Annot.,€Duty€of€Trustee€to€Diversify€Investments,€andÐ ° ÐLiability€for€Failure€to€Do€So,€24€A.L.R.€3d€730€(1969)€&€1992€Supp.€at€78-79.Ð ‘á ÐÌà  àThe€1992€Restatement€of€Trusts€takes€the€significant€step€of€integrating€the€diversificationÐ S£ Ðrequirement€into€the€concept€of€prudent€investing.€€Section€227(b)€of€the€1992€Restatement€treatsÐ 4„ Ðdiversification€as€one€of€the€fundamental€elements€of€prudent€investing,€replacing€the€separate€section€228Ð e Ðof€the€Restatement€of€Trusts€2d.€€The€message€of€the€1992€Restatement,€carried€forward€in€Section€3€ofÐ öF Ðthis€Act,€is€that€prudent€investing€ordinarily€requires€diversification.Ð ×' ÐÌà  àCircumstances€can,€however,€overcome€the€duty€to€diversify.€€For€example,€if€a€tax„sensitive€trustÐ ™é Ðowns€an€underdiversified€block€of€low„basis€securities,€the€tax€costs€of€recognizing€the€gain€may€Ô_ÔoutweighÐ z Ê Ðthe€advantages€of€diversify‚ing€the€holding.€€The€wish€to€retain€a€family€business€is€another€situation€inÐ [!«  Ðwhich€the€purposes€of€the€trust€sometimes€override€the€conventional€duty€to€diversify.Ð <"Œ! ÐÌà  àò òRationale€for€diversification.ó ó€€ð ðDiversification€reduces€risk€.€.€.€[because]€stock€priceÐ þ#N# Ðmovements€are€not€uniform.€€They€are€imperfectly€correlated.€€This€means€that€if€one€holds€a€wellÐ ì$< $ Ðdiversified€portfolio,€the€gains€in€one€investment€will€cancel€out€the€losses€in€another.ðð€€Jonathan€R.Ð Í%!% ÐÔ_ÔMaceyÔ_Ô,€An€Introduction€to€Modern€Financial€Theory€20€(American€College€of€Trust€and€Estate€CounselÐ ®&þ!& ÐFoundation,€1991).€€For€example,€during€the€Arab€oil€embargo€of€1973,€international€oil€stocks€sufferedÐ 'ß"' Ðdeclines,€but€the€shares€of€domestic€oil€producers€and€coal€companies€benefitted.€€Holding€a€broad€enoughÐ p(À#( Ðportfolio€allowed€the€investor€to€set€off,€to€some€extent,€the€losses€associated€with€the€embargo.Ð Q)¡$) ÐÌà  àModern€portfolio€theory€divides€risk€into€the€categories€of€ð ðcompensatedðð€and€ð ðuncompensatedððÐ +c&+ Ðrisk.€€The€risk€of€owning€shares€in€a€mature€and€well„managed€company€in€a€settled€industry€is€less€thanÐ ô+D', Ðthe€risk€of€owning€shares€in€a€start„up€high„technology€venture.€€The€investor€requires€a€higher€expectedÐ ° Ðreturn€to€induce€the€investor€to€bear€the€greater€risk€of€disappointment€associated€with€the€start„up€firm.€Ð ‘á ÐThis€is€compensated€riskð!ð€the€firm€pays€the€investor€for€bearing€the€risk.€€By€contrast,€nobody€pays€theÐ r Ðinvestor€for€owning€too€few€stocks.€€The€investor€who€owned€only€international€oils€in€1973€was€running€aÐ S£ Ðrisk€that€could€have€been€reduced€by€having€configured€the€portfolio€differentlyð!ð€to€include€investments€inÐ 4„ Ðdifferent€industries.€€This€is€uncompensated€riskð!ð€nobody€pays€the€investor€for€owning€shares€in€too€fewÐ  e Ðindustries€and€too€few€companies.€€Risk€that€can€be€eliminated€by€adding€different€stocks€(or€bonds)€isÐ ö F Ðuncompensated€risk.€€The€object€of€diversification€is€to€minimize€this€uncompensated€risk€of€having€tooÐ × ' Ðfew€investments.€€ð ðAs€long€as€stock€prices€do€not€move€exactly€together,€the€risk€of€a€diversified€portfolioÐ ¸  Ðwill€be€less€than€the€average€risk€of€the€separate€holdings.ðð€€R.A.€Ô_ÔBrealeyÔ_Ô,€An€Introduction€to€Risk€andÐ ™ é  ÐReturn€from€Common€Stocks€103€(2d€ed.€1983).Ð z Ê  ÐÌà  àThere€is€no€automatic€rule€for€identifying€how€much€diversification€is€enough.€€The€1992Ð <Œ  ÐRestatement€says:€ð ðSignificant€diversification€advantages€can€be€achieved€with€a€small€number€of€well„Ð m  Ðselected€securities€representing€different€industries€.€.€.€.€€Broader€diversification€is€usually€to€be€preferredÐ þN  Ðin€trust€investing,ðð€and€pooled€investment€vehicles€ð ðmake€thorough€diversification€practical€for€mostÐ ß/  Ðtrustees.ðð€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€General€Note€on€Comments€òòeóó-òòhóó,€at€77Ð À Ð(1992).€€See€also€Ô_ÔMaceyÔ_Ô,€supra,€at€23-24;€Ô_ÔBrealeyÔ_Ô,€supra,€at€111-13.Ð ¡ñ ÐÌà  àò òDiversifying€by€pooling.ó ó€€It€is€difficult€for€a€small€trust€fund€to€diversify€thoroughly€byÐ c³ Ðconstructing€its€own€portfolio€of€individually€selected€investments.€€Transaction€costs€such€as€the€round„lotÐ Q¡ Ð(100€share)€trading€economies€make€it€relatively€expensive€for€a€small€investor€to€assemble€a€broadÐ 2‚ Ðenough€portfolio€to€minimize€uncompensated€risk.€€For€this€reason,€pooled€investment€vehicles€haveÐ c Ðbecome€the€main€mechanism€for€facilitating€diversification€for€the€investment€needs€of€smaller€trusts.Ð ôD ÐÌà  àMost€states€have€legislation€authorizing€common€trust€funds;€see€3€Austin€W.€Scott€&€William€F.Ð ¶ ÐÔ_ÔFratcherÔ_Ô,€The€Law€of€Trusts€ðð227.9,€at€463-65€n.26€(4th€ed.€1988)€(collecting€citations€to€state€statutes).€Ð —ç ÐAs€of€1992,€35€states€and€the€District€of€Columbia€had€enacted€the€Uniform€Common€Trust€Fund€ActÐ xÈ Ð(Ô_ÔUCTFAÔ_Ô)€(1938),€overcoming€the€rule€against€commingling€trust€assets€and€expressly€enabling€banks€andÐ Y© Ðtrust€companies€to€establish€common€trust€funds.€€7€Uniform€Laws€Ann.€1992€Supp.€at€130€(schedule€ofÐ :Š Ðadopting€states).€€The€Prefatory€Note€to€the€Ô_ÔUCTFAÔ_Ô€explains:€ð ðThe€purposes€of€such€a€common€or€jointÐ k Ðinvestment€fund€are€to€diversify€the€investment€of€the€several€trusts€and€thus€spread€the€risk€of€loss,€andÐ üL Ðto€make€it€easy€to€invest€any€amount€of€trust€funds€quickly€and€with€a€small€amount€of€trouble.ðð€7Ð Ý -  ÐUniform€Laws€Ann.€402€(1985).Ð ¾!! ÐÌà  àò òFiduciary€investing€in€mutual€funds.ó ó€€Trusts€can€also€achieve€diversification€by€investing€inÐ €#Ð# Ðmutual€funds.€€See€Restatement€of€Trusts€3d:€Prudent€Investor€Rule,€ðð227,€Comment€òòmóó,€at€99-100€(1992)Ð n$¾$ Ð(endorsing€trust€investment€in€mutual€funds).€€Ô_ÔERISAÔ_Ô€ðð401(b)(1),€29€U.S.C.€ðð1101(b)(1),€expresslyÐ O%Ÿ % Ðauthorizes€pension€trusts€to€invest€in€mutual€funds,€identified€as€securities€ð ðissued€by€an€investmentÐ 0&€!& Ðcompany€registered€under€the€Investment€Company€Act€of€1940€.€.€.€€.ððÐ 'a"' ÐÔ#†& J % %& J¤#ÔÔ#†X7íX %& JÁ¤#ÔÔ‡Š‹ˆXX7íÔÌà  àò òÔ  ÔSec.€117.006.€DUTIES€AT€INCEPTION€OF€TRUSTEESHIP.Ô €s9ÂÔó ó€Within€a€reasonableÐ ì(<$) Ðtime€after€accepting€a€trusteeship€or€receiving€trust€assets,€a€trustee€shall€review€the€trustÐ æ)6%* Ðassets€and€make€and€implement€decisions€concerning€the€retention€and€disposition€ofÐ à*0&+ Ðassets,€in€order€to€bring€the€trust€portfolio€into€compliance€with€the€purposes,€terms,Ð Ú+*', Ðdistribution€requirements,€and€other€circumstances€of€the€trust,€and€with€the€requirementsÐ ° Ðof€this€chapter.ÓӀРªú ÐÔ#†X7íXˆŠ‹ Â#ÔÔ‡& J %XX7íÔÌÔ‡& J % %& JÔà@NN!ìàò òUniform€Act€Commentó óˆÐ …Õ ÐÌà  àSection€4€[Texas€Trust€Code€ðð117.006],€requiring€the€trustee€to€dispose€of€unsuitable€assetsÐ H ˜ Ðwithin€a€reasonable€time,€is€old€law,€codified€in€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð229Ð ) y Ð(1992),€lightly€revising€Restatement€of€Trusts€2d€ðð230€(1959).€€The€duty€extends€as€well€to€investmentsÐ  Z Ðthat€were€proper€when€purchased€but€subsequently€become€improper.€€Restatement€of€Trusts€2d€ðð231Ð ë ; Ð(1959).€€The€same€standards€apply€to€successor€trustees,€see€Restatement€of€Trusts€2d€ðð196€(1959).Ð Ì   ÐÌà  àThe€question€of€what€period€of€time€is€reasonable€turns€on€the€totality€of€factors€affecting€theÐ ŽÞ  Ðasset€and€the€trust.€€The€1959€Restatement€took€the€view€that€ð ð[Ô_Ôo]rdinarilyÔ_Ô€any€time€within€a€year€isÐ o¿  Ðreasonable,€but€under€some€circumstances€a€year€may€be€too€long€a€time€and€under€other€circumstances€aÐ P   Ðtrustee€is€not€liable€although€he€fails€to€effect€the€conversion€for€more€than€a€year.ðð€€Restatement€ofÐ 1  ÐTrusts€2d€ðð230,€comment€òòbóó€(1959).€€The€1992€Restatement€retreated€from€this€rule€of€thumb,€saying,Ð b  Ðð ðNo€positive€rule€can€be€stated€with€respect€to€what€constitutes€a€reasonable€time€for€the€sale€orÐ óC Ðexchange€of€securities.ðð€€Restatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð229,€comment€òòbóó€(1992).Ð Ô$ ÐÌà  àThe€criteria€and€circumstances€identified€in€Section€2€of€this€Act€[Texas€Trust€Code€ðð117.004]€asÐ –æ Ðbearing€upon€the€prudence€of€decisions€to€invest€and€manage€trust€assets€also€pertain€to€the€prudence€ofÐ wÇ Ðdecisions€to€retain€or€dispose€of€inception€assets€under€this€section.Ô#†& J % %& JåÄ#ÔÐ X¨ ÐÌò òà@™™"ìàTexas€Bar€Commentó óˆÐ j ÐÌà  àThis€section€is€a€significant€departure€from€prior€Texas€law,€which€allowed€a€trustee€to€retain€theÐ Ý- Ðinitial€trust€estate€without€diversification€and€without€liability€for€loss€or€depreciation.€€See€former€TexasÐ ¾ ÐProperty€Code€ðð€113.003.€€This€change€is€consistent€with€the€overall€purpose€and€effect€of€the€prudentÐ Ÿï Ðinvestor€rule.Ð €Ð ÐÔ_ÔÔ#†X7íX %& JÅÄ#ÔÔ‡Š‹ˆXX7íÔÌà  àÓÓò òÔ  ÔSec.€117.007.€LOYALTY.Ô €s,ÏÔó ó€A€trustee€shall€invest€and€manage€the€trust€assets€solelyÐ [« Ðin€the€interest€of€the€beneficiaries.ÓӀРU ¥ ÐÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹íÎ#ÔÌÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ I"™! ÐÌà  àThe€duty€of€loyalty€is€perhaps€the€most€characteristic€rule€of€trust€law,€requiring€the€trustee€to€actÐ  $\# Ðexclusively€for€the€beneficiaries,€as€opposed€to€acting€for€the€trusteeððs€own€interest€or€that€of€third€parties.€Ð í$= $ ÐThe€language€of€Section€4€[òòsicóó]€of€this€Act€[Texas€Trust€Code€ðð117.006]€derives€from€Restatement€ofÐ Î%!% ÐTrusts€3d:€Prudent€Investor€Rule€ðð170€(1992),€which€makes€minute€changes€in€Restatement€of€Trusts€2dÐ ¯&ÿ!& Ððð170€(1959).Ð 'à"' ÐÌà  àThe€concept€that€the€duty€of€prudence€in€trust€administration,€especially€in€investing€and€managingÐ R)¢$) Ðtrust€assets,€entails€adherence€to€the€duty€of€loyalty€is€familiar.€€ERISA€ðð404(a)(1)(B),€29€U.S.C.Ð 3*ƒ%* Ððð1104(a)(1)(B),€extracted€in€the€Comment€to€Section€1€of€this€Act€[Texas€Trust€Code€ðð117.003],Ð +d&+ Ðeffectively€merges€the€requirements€of€prudence€and€loyalty.€€A€fiduciary€cannot€be€prudent€in€theÐ õ+E', Ðconduct€of€investment€functions€if€the€fiduciary€is€sacrificing€the€interests€of€the€beneficiaries.Ð ° ÐÌà  àThe€duty€of€loyalty€is€not€limited€to€settings€entailing€self„dealing€or€conflict€of€interest€in€whichÐ r Ðthe€trustee€would€benefit€personally€from€the€trust.€€ð ðThe€trustee€is€under€a€duty€to€the€beneficiary€inÐ S£ Ðadministering€the€trust€not€to€be€guided€by€the€interest€of€any€third€person.€€Thus,€it€is€improper€for€theÐ 4„ Ðtrustee€to€sell€trust€property€to€a€third€person€for€the€purpose€of€benefitting€the€third€person€rather€than€theÐ  e Ðtrust.ðð€€Restatement€of€Trusts€2d€ðð170,€comment€òòqóó,€at€371€(1959).Ð ö F ÐÌà  àNo€form€of€so„called€ð ðsocial€investingðð€is€consistent€with€the€duty€of€loyalty€if€the€investmentÐ ¸  Ðactivity€entails€sacrificing€the€interests€of€trust€beneficiariesð!ð€for€example,€by€accepting€below„marketÐ ™ é  Ðreturnsð!ð€in€favor€of€the€interests€of€the€persons€supposedly€benefitted€by€pursuing€the€particular€socialÐ z Ê  Ðcause.€€See,€e.g.,€John€H.€Langbein€&€Richard€Posner,€Social€Investing€and€the€Law€of€Trusts,€79Ð [«  ÐMichigan€L.€Rev.€72,€96-97€(1980)€(collecting€authority).€€For€pension€trust€assets,€see€generally€Ian€D.Ð <Œ  ÐLanoff,€The€Social€Investment€of€Private€Pension€Plan€Assets:€May€it€Be€Done€Lawfully€under€ERISA?,Ð m  Ð31€Labor€L.J.€387€(1980).€€Commentators€supporting€social€investing€tend€to€concede€the€overriding€forceÐ þN  Ðof€the€duty€of€loyalty.€€They€argue€instead€that€particular€schemes€of€social€investing€may€not€result€inÐ ß/  Ðbelow„market€returns.€€See,€e.g.,€Marcia€OððBrien€Hylton,€ð ðSocially€Responsibleðð€Investing:€Doing€GoodÐ À ÐVersus€Doing€Well€in€an€Inefficient€Market,€42€American€U.L.€Rev.€1€(1992).€€In€1994€the€DepartmentÐ ¡ñ Ðof€Labor€issued€an€Interpretive€Bulletin€reviewing€its€prior€analysis€of€social€investing€questions€andÐ ‚Ò Ðreiterating€that€pension€trust€fiduciaries€may€invest€only€in€conformity€with€the€prudence€and€loyaltyÐ c³ Ðstandards€of€ERISA€ðððð403-404.€€Interpretive€Bulletin€94-1,€59€Fed.€Regis.€32606€(Jun.€22,€1994),€to€beÐ D” Ðcodified€as€29€CFR€ðð2509.94-1.€€The€Bulletin€reminds€fiduciary€investors€that€they€are€prohibited€fromÐ %u Ðð ðsubordinat[ing]€the€interests€of€participants€and€beneficiaries€in€their€retirement€income€to€unrelatedÐ V Ðobjectives.ððÔ#†& J % %& JÿÏ#ÔÐ ç7 ÐÔ#†X7íX %& JBÐ#ÔÔ‡Š‹ˆXX7íÔÌà  àÓÓò òÔ  ÔSec.€117.008.€IMPARTIALITY.Ô  ¾ßÔó ó€If€a€trust€has€two€or€more€beneficiaries,€the€trusteeÐ Â Ðshall€act€impartially€in€investing€and€managing€the€trust€assets,€taking€into€account€anyÐ ¼  Ðdiffering€interests€of€the€beneficiaries.ÓӀР¶ ÐÌÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹ß#ÔÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ ªú ÐÌà  àThe€duty€of€impartiality€derives€from€the€duty€of€loyalty.€€When€the€trustee€owes€duties€to€moreÐ m ½ Ðthan€one€beneficiary,€loyalty€requires€the€trustee€to€respect€the€interests€of€all€the€beneficiaries.€€PrudenceÐ N!ž  Ðin€investing€and€administration€requires€the€trustee€to€take€account€of€the€interests€of€all€the€beneficiariesÐ /"! Ðfor€whom€the€trustee€is€acting,€especially€the€conflicts€between€the€interests€of€beneficiaries€interested€inÐ #`" Ðincome€and€those€interested€in€principal.Ð ñ#A# ÐÌà  àThe€language€of€Section€6€[Texas€Trust€Code€ðð117.008]€derives€from€Restatement€of€Trusts€2dÐ ³%!% Ððð183€(1959);€see€also€id.,€ðð232.€€Multiple€beneficiaries€may€be€beneficiaries€in€succession€(such€as€lifeÐ ”&ä!& Ðand€remainder€interests)€or€beneficiaries€with€simultaneous€interests€(as€when€the€income€interest€in€aÐ u'Å"' Ðtrust€is€being€divided€among€several€beneficiaries).Ð V(¦#( ÐÌà  àThe€trusteeððs€duty€of€impartiality€commonly€affects€the€conduct€of€investment€and€managementÐ *h%* Ðfunctions€in€the€sphere€of€principal€and€income€allocations.€€This€Act€prescribes€no€regime€for€allocatingÐ ù*I&+ Ðreceipts€and€€expenses.€€The€details€of€such€allocations€are€commonly€handled€under€specializedÐ Ú+*', Ðlegislation,€such€as€the€Revised€Uniform€Principal€and€Income€Act€(1962)€(which€is€presently€under€studyÐ ° Ðby€the€Uniform€Law€Commission€with€a€view€toward€further€revision€[òòseeóó€Texas€Trust€Code€Chapter€116Ð ‘á Ðð!ð€The€Uniform€Principal€and€Income€Act]).Ô#†& J % %& Já#ÔÔ#†X7íX %& JGá#ÔÔ‡Š‹ˆXX7íÔÐ r ÐÌà  àÓÓò òÔ  ÔSec.€117.009.€INVESTMENT€COSTS.Ô  ðèÔó ó€In€investing€and€managing€trust€assets,€aÐ M Ðtrustee€may€only€incur€costs€that€are€appropriate€and€reasonable€in€relation€to€the€assets,€theÐ G — Ðpurposes€of€the€trust,€and€the€skills€of€the€trustee.ÓÓ€ÓÓÐ A ‘ ÐÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹œè#ÔÌÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ 5 … ÐÌà  àWasting€beneficiariesðð€money€is€imprudent.€€In€devising€and€implementing€strategies€for€theÐ ø H  Ðinvestment€and€management€of€trust€assets,€trustees€are€obliged€to€minimize€costs.Ð Ù)  ÐÌà  àThe€language€of€Section€7€[Texas€Trust€Code€ðð117.009]€derives€from€Restatement€of€Trusts€2dÐ ›ë  Ððð188€(1959).€€The€Restatement€of€Trusts€3d€says:€ð ðConcerns€over€compensation€and€other€charges€areÐ |Ì  Ðnot€an€obstacle€to€a€reasonable€course€of€action€using€mutual€funds€and€other€pooling€arrangements,€butÐ ]­  Ðthey€do€require€special€attention€by€a€trustee.€.€.€.€€[I]t€is€important€for€trustees€to€make€careful€costÐ >Ž Ðcomparisons,€particularly€among€similar€products€of€a€specific€type€being€considered€for€a€trust€portfolio.ðð€Ð o ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€comment€òòmóó,€at€58€(1992).Ô#†X7íX %& J“ê#ÔÐ P ÐÌÔ#†X7íXXX7íPê#ÔÔ‡Š‹ˆXX7íÔà  àò òÔ  ÔSec.€117.010.€REVIEWING€COMPLIANCE.Ô  :ïÔó ó€Compliance€with€the€prudentÐ Û+ Ðinvestor€rule€is€determined€in€light€of€the€facts€and€circumstances€existing€at€the€time€of€aÐ Õ% Ðtrustee's€decision€or€action€and€not€by€hindsight.ÓÓÐ Ï ÐÔ_ÔÌÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹ ï#ÔÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ à ÐÌà  àThis€section€derives€from€the€1991€Illinois€act,€760€Ô_ÔILCSÔ_Ô€5/5(a)(2)€(1992),€which€draws€uponÐ †Ö ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð227,€comment€òòbóó,€at€11€(1992).€€Trustees€are€notÐ g· Ðinsurers.€€Not€every€investment€or€management€decision€will€turn€out€in€the€light€of€hindsight€to€have€beenÐ H˜ Ðsuccessful.€€Hindsight€is€not€the€relevant€standard.€€In€the€language€of€law€and€economics,€the€standard€isÐ )y Ðex€ante,€not€ex€post.Ô#†& J % %& J‹ð#ÔÔ#†X7íX %& JÍð#ÔÔ‡Š‹ˆXX7íÔÐ  Z ЀÓÓÌà  àò òÔ  ÔSec.€117.011.€DELEGATION€OF€INVESTMENT€AND€MANAGEMENTÐ å!5  ÐFUNCTIONS.ó ó€Ô  úóÔ(a)€A€trustee€may€delegate€investment€and€management€functions€that€aÐ ß"/! Ðprudent€trustee€of€comparable€skills€could€properly€delegate€under€the€circumstances.€TheÐ Ù#)" Ðtrustee€shall€exercise€reasonable€care,€skill,€and€caution€in:Ð Ó$# # ÐÌà  àà ` à€(1)€selecting€an€agent;Ð Ç&"% ÐÌà  àà ` à€(2)€establishing€the€scope€and€terms€of€the€delegation,€consistent€with€theÐ »( $' Ðpurposes€and€terms€of€the€trust;€andÐ µ)%( ÐÌà  àà ` à€(3)€periodically€reviewing€the€agent's€actions€in€order€to€monitor€the€agent'sÐ ©+ù&* Ðperformance€and€compliance€with€the€terms€of€the€delegation.Ð ° ÐÌà  à€(b)€In€performing€a€delegated€function,€an€agent€owes€a€duty€to€the€trust€to€exerciseÐ ¤ô Ðreasonable€care€to€comply€with€the€terms€of€the€delegation.Ð žî ÐÌà  à€(c)€A€trustee€who€complies€with€the€requirements€of€Subsection€(a)€is€not€liable€toÐ ’ â Ðthe€beneficiaries€or€to€the€trust€for€the€decisions€or€actions€of€the€agent€to€whom€theÐ Œ Ü Ðfunction€was€delegated,€unless:Ð † Ö ÐÌà  àà ` à€(1)€the€agent€is€an€affiliate€of€the€trustee;€orÐ z Ê  ÐÌà  àà ` à€(2)€under€the€terms€of€the€delegation:Ð n¾  ÐÌà  àà ` àà ¸ à€(A)€the€trustee€or€a€beneficiary€of€the€trust€is€required€to€arbitrateÐ b²  Ðdisputes€with€the€agent;€orÐ \¬  ÐÌà  àà ` àà ¸ à€(B)€the€period€for€bringing€an€action€by€the€trustee€or€a€beneficiary€ofÐ P  Ðthe€trust€with€respect€to€an€agent's€actions€is€shortened€from€that€which€is€applicable€toÐ Jš Ðtrustees€under€the€law€of€this€state.Ð D” ÐÌà  à€(d)€By€accepting€the€delegation€of€a€trust€function€from€the€trustee€of€a€trust€that€isÐ 8ˆ Ðsubject€to€the€law€of€this€state,€an€agent€submits€to€the€jurisdiction€of€the€courts€of€thisÐ 2‚ Ðstate.Ð ,| ÐÔ#†X7íXˆŠ‹¥ó#ÔÔ‡& J %XX7íÔÌÔ‡& J % %& JÔà@NN!ìàò òUniform€Act€Commentó óˆÐ W ÐÌà  àThis€section€of€the€Act€reverses€the€much„criticized€rule€that€forbad€trustees€to€delegateÐ Ê Ðinvestment€and€management€functions.€€The€language€of€this€section€is€derived€from€Restatement€ofÐ «û ÐTrusts€3d:€Prudent€Investor€Rule€ðð171€(1992),€discussed€infra,€and€from€the€1991€Illinois€act,€760€Ô_ÔILCSÔ_ÔÐ ŒÜ Ððð5/5.1(b),€(c)€(1992).Ð m ½ ÐÌà  àò òFormer€law.ó ó€€The€former€Ô_ÔnondelegationÔ_Ô€rule€survived€into€the€1959€€Restatement:€ð ðThe€trustee€isÐ /" Ðunder€a€duty€to€the€beneficiary€not€to€delegate€to€others€the€doing€of€acts€which€the€trustee€canÐ #m  Ðreasonably€be€required€personally€to€perform.ðð€€The€rule€put€a€premium€on€the€frequently€arbitrary€task€ofÐ þ#N! Ðdistinguishing€discretionary€functions€that€were€thought€to€be€Ô_ÔnondelegableÔ_Ô€from€supposedly€ministerialÐ ß$/ " Ðfunctions€that€the€trustee€was€allowed€to€delegate.€€Restatement€of€Trusts€2d€ðð171€(1959).Ð À%!# ÐÌà  àThe€Restatement€of€Trusts€2d€admitted€in€a€comment€that€ð ðThere€is€not€a€clear„cut€line€dividingÐ ‚'Ò"% Ðthe€acts€which€a€trustee€can€properly€delegate€from€those€which€he€cannot€properly€delegate.ðð€€Instead,Ð c(³#& Ðthe€comment€directed€attention€to€a€list€of€factors€that€ð ðmay€be€of€importance:€(1)€the€amount€of€discretionÐ D)”$' Ðinvolved;€(2)€the€value€and€character€of€the€property€involved;€(3)€whether€the€property€is€principal€orÐ %*u%( Ðincome;€(4)€the€proximity€or€remoteness€of€the€subject€matter€of€the€trust;€(5)€the€character€of€the€act€asÐ +V&) Ðone€involving€professional€skill€or€facilities€possessed€or€not€possessed€by€the€trustee€himself.ðð€Ð ç+7'* ÐRestatement€of€Trusts€2d€ðð171,€comment€òòdóó€(1959).€€€The€1959€Restatement€further€said:€ð ðA€trusteeÐ ° Ðcannot€properly€delegate€to€another€power€to€select€investments.ðð€€Restatement€of€Trusts€2d€ðð171,Ð ‘á Ðcomment€òòhóó€(1959).Ð r ÐÌà  àFor€discussion€and€criticism€of€the€former€rule€see€William€L.€Cary€&€Craig€B.€Bright,€TheÐ 4„ ÐDelegation€of€Investment€Responsibility€for€Endowment€Funds,€74€Columbia€L.€Rev.€207€(1974);€John€H.Ð  e ÐÔ_ÔLangbeinÔ_Ô€&€Richard€A.€Ô_ÔPosnerÔ_Ô,€Market€Funds€and€Trust„Investment€Law,€1976€American€BarÐ ö F ÐFoundation€Research€J.€1,€18-24.Ð × ' ÐÌà  àò òThe€modern€trend€to€favor€delegation.ó ó€€The€trend€of€subsequent€legislation,€culminating€in€theÐ ™ é  ÐRestatement€of€Trusts€3d:€Prudent€Investor€Rule,€has€been€strongly€hostile€to€the€Ô_ÔnondelegationÔ_Ô€rule.€€SeeÐ ‡ ×  ÐJohn€H.€Ô_ÔLangbeinÔ_Ô,€Reversing€the€Ô_ÔNondelegationÔ_Ô€Rule€of€Trust„Investment€Law,€59€Missouri€L.€Rev.€105Ð h¸  Ð(1994).Ð I™  ÐÌà  àò òThe€delegation€rule€of€the€Uniform€Trustee€Powers€Act.ó ó€€The€Uniform€Trustee€Powers€ActÐ  [  Ð(1964)€effectively€abrogates€the€Ô_ÔnondelegationÔ_Ô€rule.€€It€authorizes€trustees€ð ðto€employ€persons,€includingÐ ùI  Ðattorneys,€auditors,€investment€advisors,€or€agents,€even€if€they€are€associated€with€the€trustee,€to€adviseÐ Ú* Ðor€assist€the€trustee€in€the€performance€of€his€administrative€duties;€to€act€without€independentÐ »  Ðinvestigation€upon€their€recommendations;€and€instead€of€acting€personally,€to€employ€one€or€more€agentsÐ œì Ðto€perform€any€act€of€administration,€whether€or€not€discretionary€.€.€.€.ðð€€Uniform€Trustee€Powers€ActÐ }Í Ððð3(24),€7B€Uniform€Laws€Ann.€743€(1985).€€€The€Act€has€been€enacted€in€16€states,€see€ð ðRecord€ofÐ ^® ÐPassage€of€Uniform€and€Model€Acts€as€of€September€30,€1993,ðð€1993-94€Reference€Book€of€UniformÐ ? ÐLaw€Commissioners€(Ô_ÔunpaginatedÔ_Ô,€following€page€111)€(1993).Ð  p ÐÌà  àò òÔ_ÔUMIFAÔ_Ôððs€delegation€rule.ó ó€€The€Uniform€Management€of€Institutional€Funds€Act€(1972)Ð â2 Ð(Ô_ÔUMIFAÔ_Ô),€authorizes€the€governing€boards€of€eleemosynary€institutions,€who€are€trustee„like€fiduciaries,Ð Ð  Ðto€delegate€investment€matters€either€to€a€committee€of€the€board€or€to€outside€investment€advisors,Ð ± Ðinvestment€counsel,€managers,€banks,€or€trust€companies.€€Ô_ÔUMIFAÔ_Ô€ðð5,€7A€Uniform€Laws€Ann.€705Ð ’â Ð(1985).€€Ô_ÔUMIFAÔ_Ô€has€been€enacted€in€38€states,€see€ð ðRecord€of€Passage€of€Uniform€and€Model€Acts€asÐ sà Ðof€September€30,€1993,ðð€1993-94€Reference€Book€of€Uniform€Law€Commissioners€(Ô_ÔunpaginatedÔ_Ô,Ð T¤ Ðfollowing€page€111)€(1993).Ð 5… ÐÌà  àò òÔ_ÔERISAÔ_Ôððs€delegation€rule.ó ó€€The€Employee€Retirement€Income€Security€Act€of€1974,€the€federalÐ ÷ G  Ðstatute€that€prescribes€fiduciary€standards€for€investing€the€assets€of€pension€and€employee€benefit€plans,Ð å!5! Ðallows€a€pension€or€employee€benefit€plan€to€provide€that€ð ðauthority€to€manage,€acquire€or€dispose€ofÐ Æ"" Ðassets€of€the€plan€is€delegated€to€one€or€more€investment€managers€.€.€.€.ðð€€Ô_ÔERISAÔ_Ô€ðð403(a)(2),€29€U.S.C.Ð §#÷# Ððð1103(a)(2).€€Commentators€have€explained€the€rationale€for€Ô_ÔERISAÔ_Ôððs€encouragement€of€delegation:Ð ˆ$Ø$ ÐÌà0  àà ` àà ¸ àÔ_ÔERISAÔ_Ô€.€.€.€invites€the€dissolution€of€unitary€trusteeship.€.€.€.€€Ô_ÔERISAÔ_ÔððsÐ J&š!& Ðfractionation€of€traditional€trusteeship€reflects€the€complexity€of€the€modern€pension€trust.€Ð +'{"' ÐBecause€millions,€even€billions€of€dollars€can€be€involved,€great€care€is€required€in€investing€andÐ  (\#( Ðsafekeeping€plan€assets.€€Administering€such€plansð!ðcomputing€and€honoring€benefit€entitlementsÐ í(=$) Ðacross€decades€of€employment€and€retirementð!ðis€also€a€complex€business.€.€.€.€€Since,€however,Ð Î)%* Ðneither€the€sponsor€nor€any€other€single€entity€has€a€comparative€advantage€in€performing€allÐ ¯*ÿ%+ Ðthese€functions,€the€tendency€has€been€for€pension€plans€to€use€a€variety€of€specialized€providers.€Ð +à&, ÐA€consulting€actuary,€a€plan€administration€firm,€or€an€insurance€company€may€oversee€the€designÐ ° Ðof€a€plan€and€arrange€for€processing€benefit€claims.€€Investment€industry€professionals€manageÐ ‘á Ðthe€portfolio€(the€largest€plans€spread€their€pension€investments€among€dozens€of€moneyÐ r Ðmanagement€firms).ÐS£(#(# ÐÌJohn€H.€Ô_ÔLangbeinÔ_Ô€&€Bruce€A.€Ô_ÔWolkÔ_Ô,€Pension€and€Employee€Benefit€Law€496€(1990).Ð  e ÐÌà  àò òThe€delegation€rule€of€the€1992€Restatement.ó ó€€The€Restatement€of€Trusts€3d:€PrudentÐ × ' ÐInvestor€Rule€(1992)€repeals€the€Ô_ÔnondelegationÔ_Ô€rule€of€Restatement€of€Trusts€2d€ðð171€(1959),€extractedÐ Å  Ðsupra,€and€replaces€it€with€substitute€text€that€reads:€Ð ¦ ö  ÐÌà0  àà ` àà ¸ àðð171.€€Duty€with€Respect€to€Delegation.€€A€trustee€has€a€duty€personally€toÐ h¸  Ðperform€the€responsibilities€of€trusteeship€except€as€a€prudent€person€might€delegate€thoseÐ I™  Ðresponsibilities€to€others.€€In€deciding€whether,€to€whom,€and€in€what€manner€to€delegate€fiduciaryÐ *z  Ðauthority€in€the€administration€of€a€trust,€and€thereafter€in€supervising€agents,€the€trustee€is€underÐ  [  Ða€duty€to€the€beneficiaries€to€exercise€fiduciary€discretion€and€to€act€as€a€prudent€person€wouldÐ ì<  Ðact€in€similar€circumstances.ÐÍ(#(# ÐÌRestatement€of€Trusts€3d:€Prudent€Investor€Rule€ðð171€(1992).€€The€1992€Restatement€integrates€thisÐ ß Ðdelegation€standard€into€the€prudent€investor€rule€of€section€227,€providing€that€ð ðthe€trustee€must€.€.€.€actÐ pÀ Ðwith€prudence€in€deciding€whether€and€how€to€delegate€to€others€.€.€.€.ðð€€Restatement€of€Trusts€3d:Ð Q¡ ÐPrudent€Investor€Rule€ðð227(c)€(1992).Ð 2‚ ÐÌà  àò òProtecting€the€beneficiary€against€unreasonable€delegation.ó ó€€There€is€an€intrinsic€tension€inÐ ôD Ðtrust€law€between€granting€trustees€broad€powers€that€facilitate€flexible€and€efficient€trust€administration,Ð â2 Ðon€the€one€hand,€and€protecting€trust€beneficiaries€from€the€misuse€of€such€powers€on€the€other€hand.€€AÐ Ã Ðbroad€set€of€trusteesðð€powers,€such€as€those€found€in€most€lawyer„drafted€instruments€and€exemplified€inÐ ¤ô Ðthe€Uniform€Trusteesðð€Powers€Act,€permits€the€trustee€to€act€vigorously€and€expeditiously€to€maximizeÐ …Õ Ðthe€interests€of€the€beneficiaries€in€a€variety€of€transactions€and€administrative€settings.€€Trust€law€reliesÐ f¶ Ðupon€the€duties€of€loyalty€and€prudent€administration,€and€upon€procedural€safeguards€such€as€periodicÐ G— Ðaccounting€and€the€availability€of€judicial€oversight,€to€prevent€the€misuse€of€these€powers.€€Delegation,Ð (x Ðwhich€is€a€species€of€trustee€power,€raises€the€same€tension.€€If€the€trustee€delegates€effectively,€theÐ  Y Ðbeneficiaries€obtain€the€advantage€of€the€agentððs€specialized€investment€skills€or€whatever€other€attributesÐ ê :  Ðinduced€the€trustee€to€delegate.€€But€if€the€trustee€delegates€to€a€knave€or€an€incompetent,€the€delegationÐ Ë!! Ðcan€work€harm€upon€the€beneficiaries.Ð ¬"ü" ÐÌà  àSection€9€of€the€Uniform€Prudent€Investor€Act€[Texas€Trust€Code€ðð117.011]€is€designed€to€strikeÐ n$¾$ Ðthe€appropriate€balance€between€the€advantages€and€the€hazards€of€delegation.€€Section€9€[Texas€TrustÐ O%Ÿ % ÐCode€ðð117.011]€authorizes€delegation€under€the€limitations€of€subsections€(a)€and€(b).€€Section€9(a)Ð 0&€!& Ð[Texas€Trust€Code€ðð117.011(a)]€€imposes€duties€of€care,€skill,€and€caution€on€the€trustee€in€selecting€theÐ 'a"' Ðagent,€in€establishing€the€terms€of€the€delegation,€and€in€reviewing€the€agentððs€compliance.Ð ò'B#( ÐÌà  àThe€trusteeððs€duties€of€care,€skill,€and€caution€in€framing€the€terms€of€the€delegation€shouldÐ ´)%* Ðprotect€the€beneficiary€against€Ô_ÔoverbroadÔ_Ô€delegation.€€For€example,€a€trustee€could€not€prudently€agree€toÐ •*å%+ Ðan€investment€management€agreement€containing€an€exculpation€clause€that€leaves€the€trust€withoutÐ v+Æ&, Ðrecourse€against€reckless€mismanagement.€€Leaving€oneððs€beneficiaries€remediless€against€willfulÐ W,§'- Ðwrongdoing€is€inconsistent€with€the€duty€to€use€care€and€caution€in€formulating€the€terms€of€the€delegation.€Ð ° ÐThis€sense€that€it€is€imprudent€to€expose€beneficiaries€to€broad€exculpation€clauses€underlies€both€federalÐ ‘á Ðand€state€legislation€restricting€exculpation€clauses,€e.g.,€Ô_ÔERISAÔ_Ô€ðððð404(a)(1)(D),€410(a),€29€U.S.C.Ð r Ððððð1104(a)(1)(D),€1110(a);€New€York€Est.€Powers€Trusts€Law€ðð11-1.7€(Ô_ÔMcKinneyÔ_Ô€1967).Ð S£ ÐÌà  àAlthough€subsection€(c)€of€the€Act€exonerates€the€trustee€from€personal€responsibility€for€theÐ  e Ðagentððs€conduct€when€the€delegation€satisfies€the€standards€of€subsection€9(a)€[Texas€Trust€CodeÐ ö F Ððð117.011(a)],€subsection€9(b)€[Texas€Trust€Code€ðð117.011(b)]€makes€the€agent€responsible€to€the€trust.€Ð × ' ÐThe€beneficiaries€of€the€trust€can,€therefore,€rely€upon€the€trustee€to€enforce€the€terms€of€the€delegation.Ð ¸  Ð[Also€see€Texas€Bar€Comment€below€regarding€additional€safeguards€in€the€Texas€version€of€thisÐ ™ é  Ðsection.]Ð z Ê  ÐÌà  àò òCosts.ó ó€€The€duty€to€minimize€costs€that€is€articulated€in€Section€7€of€this€Act€[Texas€Trust€CodeÐ <Œ  Ððð117.009]€applies€to€delegation€as€well€as€to€other€aspects€of€fiduciary€investing.€€In€deciding€whether€toÐ *z  Ðdelegate,€the€trustee€must€balance€the€projected€benefits€against€the€likely€costs.€€Similarly,€in€decidingÐ  [  Ðhow€to€delegate,€the€trustee€must€take€costs€into€account.€€The€trustee€must€be€alert€to€protect€theÐ ì<  Ðbeneficiary€from€ð ðdouble€dipping.ðð€€If,€for€example,€the€trusteeððs€regular€compensation€scheduleÐ Í Ðpresupposes€that€the€trustee€will€conduct€the€investment€management€function,€it€should€ordinarily€followÐ ®þ Ðthat€the€trustee€will€lower€its€fee€when€delegating€the€investment€function€to€an€outside€manager.Ô#†& J % %& J ý#ÔÐ ß ÐÔ#†X7íX %& Jìü#ÔÔ‡Š‹ˆXX7íÔÌÔ#†X7íXˆŠ‹÷2#ÔÔ‡& J %XX7íÔà@™™"ìàò òTexas€Bar€Commentó óˆÐ jº ÐÌà  àThis€section€departs€from€prior€Texas€law.€€Former€Texas€Property€Code€ðð€113.060€allowed€theÐ -} Ðtrustee€to€delegate€investment€decisions€to€an€agent€but€required€the€trustee€to€remain€responsible€for€theÐ ^ Ðagentððs€investment€decisions€unless€certain€conditions€were€met.Ð ï? ÐÌÑ  Ñà  àIn€order€for€a€trustee€to€avoid€liability€for€the€action€of€the€trusteeððs€agent,€the€trustee€mustÐ ± Ðcomply€with€Subsection€(a).€€In€addition,€Subsection€(c)(1)€and€(c)(2)€provides€that€the€trustee€cannotÐ ’â Ðavoid€liability€for€the€action€of€the€trusteeððs€agent€under€this€section€if€the€agent€an€Ô_ÔanÔ_Ô€affiliate€of€theÐ sà Ðtrustee€or€if€the€terms€of€the€delegation€require€arbitration€or€shorten€the€applicable€statute€of€limitations.€Ð T¤ ÐFor€the€definition€of€ð ðaffiliate,ðð€see€Texas€Trust€Code€ðð€111.004(1).€€These€requirements€are€in€addition€toÐ 5… Ðthe€requirement€that€the€trustee€comply€with€Subsection€(a);€they€do€not€replace€this€requirement.Ô#†X7íX %& J:3#ÔÔ‡Š‹ˆXX7íÔÐ  f ÐÌà  àò òÔ  ÔSec.€117.012.€LANGUAGE€INVOKING€STANDARD€OF€CHAPTER.Ô €o{8Ôó ó€TheÐ ñ!A! Ðfollowing€terms€or€comparable€language€in€the€provisions€of€a€trust,€unless€otherwiseÐ ë";" Ðlimited€or€modified,€authorizes€any€investment€or€strategy€permitted€under€this€chapter:Ð å#5# Ð"investments€permissible€by€law€for€investment€of€trust€funds,"€"legal€investments,"Ð ß$/ $ Ð"authorized€investments,"€"using€the€judgment€and€care€under€the€circumstances€thenÐ Ù%)!% Ðprevailing€that€persons€of€prudence,€discretion,€and€intelligence€exercise€in€theÐ Ó&#"& Ðmanagement€of€their€own€affairs,€not€in€regard€to€speculation€but€in€regard€to€the€permanentÐ Í'#' Ðdisposition€of€their€funds,€considering€the€probable€income€as€well€as€the€probable€safetyÐ Ç($( Ðof€their€capital,"€"prudent€man€rule,"€"prudent€trustee€rule,"€"prudent€person€rule,"€andÐ Á)%) Ð"prudent€investor€rule."ÓÓÐ »* &* ÐÐ µ+'+ ÐÔ‡Š‹ˆˆŠ‹ÔÔ#†X7íXˆŠ‹78#ÔÔ‡& J %XX7íÔà@NN!ìàò òUniform€Act€Commentó óˆÐ ° ÐÌà  àThis€provision€is€taken€from€the€Illinois€act,€760€Ô_ÔILCSÔ_Ô€ðð5/5(d)€(1992),€and€is€meant€to€facilitateÐ sà Ðincorporation€of€the€Act€by€means€of€the€formulaic€language€commonly€used€in€trust€instruments.Ô#†& J % %& J™<#ÔÔ#†X7íX %& JÛ<#ÔÔ‡Š‹ˆXX7íÔÐ T¤ ÐÌÌÔ#†X7íXˆŠ‹ˆ>#ÔÔ‡& J %XX7íÔÔ‡& J % %& JÔÌÐ   Z Ðà@} } ìàò òÔ#†X7íX %& Já>#ÔÔ‡ ýXX7íÔÔ  ÔEFFECTIVE€DATE€PROVISIONÔ  Œ?ÔÔ#†X7íX ým?#ÔÔ‡& J %XX7íÔó óˆÐ ° ÐÌÔ#†X7íX %& Jç?#ÔÔ‡Š‹ˆXX7íÔÔ#†Š‹ˆˆŠ‹?#Ôà  àSECTION€19.€(a)€This€Act€takes€effect€January€1,€2004,€and€applies€only€to€a€trustÐ Ê Ðexisting€on€or€created€after€that€date.€Ð Ä ÐÌà  à(b)€With€respect€to€a€trust€existing€on€January€1,€2004,€this€Act€applies€only€to€anÐ ¸  Ðact€or€decision€relating€to€the€trust€occurring€after€December€31,€2003.€Ô#†X7íXˆŠ‹C@#ÔÐ ²  Ð