Trust Law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

, the Duty of Prudence traditionally includes the duty of a

trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...

to administer a

trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust law, a body of law under which one person holds property for the benefit of another * Trust (bus ...

with a degree of care, skill and caution. The degree of care required depends both on the

jurisdiction Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. Jur ...

on the trustee's actual or purported skill, for example if they have an

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

background (or claimed to have one), they must exercise professional care. At a minimum, a trustee is required to act with the care of a "prudent person" would in dealing with the

assets In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

of another, given the purposes, terms, and other circumstances of the trust. Many jurisdictions have codified specific extensions or interpretations to this duty, for example related to investments, the

Uniform Prudent Investor Act ''The Uniform Prudent Investor Act'' (UPIA), which was adopted in 1992 by the American Law Institute's Third Restatement of the Law of Trusts ("Restatement of Trust 3d"), reflects a "modern portfolio theory" and "total return" approach to the exerci ...

adopted in many U.S. states requires the application of

modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversificatio ...

in diversifying investment.

References

Legal terminology {{law-term-stub