QUESTION
Is it lawful for a broker to invest a trust fund in margin accounts?
Asked on Sep 23rd, 2017 on Trusts and Estates - California
More details to this question:
Trust fund was moved to new brokerage firm at request of one of three trustees, where funds were invested in high-risk stocks with margin trading, with subsequent significant losses. There was no consensus or understanding among the trustees that the new investments were this high risk or that margin accounts were being used.
1 ANSWER
3 Awards
Most trusts do not forbid margin accounts or short selling; some even explicitly allow them. But trustees are obligated to behave as prudent investors. Unless that trustee had significant training and experience in that kind of high-risk investing, he was not behaving as a prudent investor.
You can file a court action removing him as trustee and surcharging him for the losses. As with any court action, there is no guarantee of success.
Unfortunately, almost all trusts permit one trustee to act unilaterally.This sort of thing is an example of why there should be only one trustee. The first-named trustee should be the most honest and dependable person, not the one "with experience investing."
Answered on Oct 09th, 2017 at 7:22 AM