Question #4
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 2
Status: Correct
Correct Answer: A
Question
Jordan Conomos is the new trustee for the Grant Trust, which has both current beneficiaries and remaindermen. Up until now, the trust has been entirely invested in long-term tax-free municipal bonds. Conomos decides to put 30 percent of the assets in common stocks, with the justification that taxes should be the concern of the trust beneficiaries and not the trust, and the trust needs some diversification and growth. Conomos is:
Answer Choices:
A. not violating his fiduciary duty
B. violating his fiduciary duty by not considering taxes
C. violating his fiduciary duty by not investing solely for the purposes of the current beneficiaries
Explanation
The trustee must consider tax liabilities of beneficiaries. However, he should also provide
diversification and be concerned with the desires of the remaindermen. (Remaindermen
refers to the group that is to receive the remainder of the trust once its term is complete.
Of course, some trusts never expire so not every trust has remaindermen.)