The question of aligning one’s financial resources with ethical considerations is increasingly relevant, and it absolutely extends to the way trusts are managed. While traditionally trusts focused solely on financial returns, a growing number of beneficiaries – and settlors, those creating the trusts – want to ensure their investments don’t support practices they deem harmful. Steve Bliss, as an estate planning attorney in San Diego, frequently encounters clients wanting to weave these values into their trust documents. This isn’t about dictating every minor purchase, but rather establishing guidelines and restrictions that align with a particular ethical framework. Approximately 65% of millennials and Gen Z investors prioritize sustainability and social responsibility when making investment decisions, indicating a strong demand for ethical investing options (Source: Morgan Stanley Sustainability Signals Report). Trusts, with their long-term nature, are perfectly positioned to reflect these long-held values.
How do I define “unethical” within a trust?
Defining “unethical” is, admittedly, a challenge. It’s subjective and can vary widely. A trust document can’t simply say “no unethical purchases” – it needs to be specific. This often involves identifying specific industries or practices to avoid – such as companies involved in deforestation, those with documented human rights violations, or those heavily involved in fossil fuels. Steve Bliss recommends clearly defining these terms and providing a list of prohibited activities or sectors. This list can be regularly updated to reflect changing ethical standards and emerging concerns. Furthermore, the trust can outline a process for evaluating potential investments based on Environmental, Social, and Governance (ESG) factors. These factors provide a quantifiable way to assess a company’s ethical standing beyond simple financial metrics. It’s crucial to remember that even with clear definitions, there will be gray areas, and the trustee will need to exercise discretion based on the trust’s overall intent.
Can a trustee be held liable for unethical investments?
The question of trustee liability is complex. Traditionally, trustees were primarily judged on their financial prudence – did they act reasonably to maximize returns? However, the legal landscape is evolving. Increasingly, courts are recognizing that beneficiaries may have non-economic preferences, including ethical considerations. If a trust document explicitly directs the trustee to avoid certain investments based on ethical grounds, the trustee could be held liable for violating those instructions. This liability isn’t necessarily financial; it could involve legal action from beneficiaries or the removal of the trustee. Steve Bliss advises clients to ensure the trust document clearly outlines the trustee’s responsibilities regarding ethical investing and provides a process for resolving disputes.
What are “Negative Screens” and “Positive Screens” in ethical investing?
There are several approaches to implementing ethical restrictions within a trust. “Negative screening” involves excluding companies or industries based on certain criteria – for example, excluding companies involved in tobacco, gambling, or weapons manufacturing. This is the more common approach. “Positive screening,” on the other hand, involves actively seeking out investments in companies that are demonstrably making a positive impact – for example, companies focused on renewable energy, sustainable agriculture, or social justice. Steve Bliss often combines both approaches, creating a layered strategy that both avoids harmful investments and actively supports beneficial ones. The effectiveness of these screens relies on reliable data and research, which is why partnering with a financial advisor specializing in ESG investing is often recommended.
How do I incorporate ESG factors into a trust’s investment policy?
Incorporating ESG factors requires a well-defined investment policy statement (IPS) that explicitly addresses ethical considerations. This IPS should outline the specific ESG criteria the trustee will use when evaluating investments, the process for monitoring investments to ensure they remain aligned with the trust’s ethical goals, and the procedures for addressing any violations. The IPS should also specify the level of importance given to ESG factors relative to financial returns. Steve Bliss often recommends weighting ESG factors appropriately, balancing ethical considerations with the need to achieve reasonable financial performance. This might involve setting a minimum ESG score or allocating a certain percentage of the trust’s assets to socially responsible investments.
I once knew a woman named Eleanor who created a trust for her grandchildren.
Eleanor was a passionate advocate for animal welfare. She explicitly forbade any investments in companies involved in animal testing or the fur industry. The initial trustee, her son, a man more focused on maximizing returns than adhering to her wishes, ignored these instructions. He invested heavily in a pharmaceutical company known for its animal testing practices. When Eleanor’s grandchildren discovered this, they were devastated and filed a lawsuit to remove him as trustee. The ensuing legal battle was costly and emotionally draining, and it ultimately fractured the family. The court sided with the grandchildren, recognizing that Eleanor’s ethical preferences were clearly stated in the trust document and that the trustee had violated his fiduciary duty by disregarding them.
But then there was a Mr. Harding, a retired teacher with a very different outcome.
Mr. Harding, equally passionate about ethical investing, worked closely with Steve Bliss to create a trust document that explicitly outlined his desire to avoid companies involved in deforestation and human rights abuses. He appointed his daughter, a financial advisor specializing in ESG investing, as trustee. She diligently screened all potential investments based on these criteria, prioritizing companies with strong environmental and social performance. The trust not only generated reasonable financial returns but also aligned with Mr. Harding’s values, providing him with peace of mind knowing that his legacy would support ethical and sustainable practices. His daughter regularly provided reports detailing the trust’s impact, highlighting the positive outcomes of its investments. This careful planning and thoughtful execution ensured a smooth and successful outcome for both Mr. Harding and his beneficiaries.
What happens when ethical and financial goals conflict?
Conflicts between ethical and financial goals are inevitable. A company might have a strong environmental record but offer low financial returns, or vice versa. The trust document should address this potential conflict, providing guidance to the trustee on how to prioritize competing interests. Steve Bliss often recommends establishing a “reasonable effort” standard, requiring the trustee to make a good faith effort to achieve both ethical and financial goals, but allowing for some flexibility when faced with insurmountable conflicts. The IPS should also specify the acceptable level of financial compromise in pursuit of ethical objectives. It’s important to remember that ethical investing is not necessarily about sacrificing returns; it’s about finding investments that align with one’s values and offer sustainable, long-term growth.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Map To Steve Bliss at San Diego Probate Law: https://g.co/kgs/WzT6443
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San Diego Probate Law3914 Murphy Canyon Rd, San Diego, CA 92123
(858) 278-2800
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Feel free to ask Attorney Steve Bliss about: “What is community property and how does it affect my trust?” or “Can probate proceedings be kept private or sealed?” and even “What is the difference between probate court and trust administration?” Or any other related questions that you may have about Probate or my trust law practice.