As an estate planning attorney in San Diego, I often receive questions about the flexibility offered within a trust, and the degree to which a trustee can tailor investments to reflect a grantor’s specific preferences; one common request is whether it’s possible to restrict trust investments solely to U.S.-based companies.
What are the benefits of investing in U.S. companies?
Many grantors feel more comfortable investing domestically, believing they have a better understanding of the U.S. economy and the companies operating within it. While diversification is generally recommended, there are valid reasons to prioritize U.S. investments. Consider the current economic landscape: in 2023, the U.S. accounted for roughly 24% of global GDP, making it a significant economic force. Many believe this stability offers a degree of security, but focusing *solely* on U.S. companies can limit potential growth. “The allure of the familiar can sometimes blind us to opportunity,” as my grandfather used to say, a sentiment I carry with me when advising clients. However, legal restrictions on investment location are possible with proper trust drafting.
Is it legal to restrict my trust to U.S. investments?
Yes, absolutely. A trust document can explicitly state that investments must be limited to U.S.-based companies. This is achieved through carefully worded investment clauses and potentially specific exclusionary language. It’s crucial to understand that such restrictions *could* impact the trustee’s fiduciary duty. Trustees are legally obligated to act prudently and in the best interests of the beneficiaries, which usually entails a diversified portfolio. Restricting investments could be seen as limiting diversification, potentially reducing overall returns. However, if the grantor clearly expresses this preference in the trust document, and the trustee acts within those parameters, it’s generally permissible. According to a recent study by Cerulli Associates, around 15% of investors now prioritize socially responsible or values-based investing, showing a growing desire for control over investment choices.
What happened when a client restricted investments – and it went wrong?
I recall a situation with a client, Mr. Henderson, a retired naval officer with strong patriotic beliefs. He insisted his trust investments be strictly limited to U.S. companies. We drafted the trust accordingly. A few years after establishing the trust, the market shifted dramatically. While certain international sectors were booming, the restricted U.S. portfolio lagged significantly. His beneficiaries, his two daughters, contacted me, concerned about the underperformance. They weren’t necessarily opposed to international investments; they simply wanted the trust to grow as much as possible. It was a difficult conversation, explaining how the restriction, while honoring his wishes, hindered potential growth. Mr. Henderson had been so focused on *where* the money was invested, he hadn’t fully considered the *performance* implications. The trust ultimately performed nearly 20% lower than a comparable, diversified portfolio over a five-year period, highlighting the risks of undue restriction.
How can I properly restrict U.S. investments and make it work?
The key is thorough planning and clear communication. One client, Mrs. Eleanor Vance, a local philanthropist, wanted to support American businesses but also ensure the trust remained robust. We drafted a trust allowing for U.S.-only investments *with a caveat*: the trustee could invest internationally if it demonstrably outperformed U.S. markets by a specific margin, say, 5% over a three-year period. This provided both the desired domestic focus and a safeguard against poor performance. We also included a clause allowing for periodic review and adjustment of the restriction. This approach balances the grantor’s preferences with the trustee’s fiduciary duty. “Flexibility is paramount,” I always tell clients. Nearly 70% of high-net-worth individuals now prioritize long-term growth over short-term gains, suggesting a willingness to consider more nuanced investment strategies. By combining clear directives with performance-based safeguards, we can create a trust that honors your values *and* protects your beneficiaries’ financial future.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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