Prudent Standards of Care in Investments
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Questions and Answers

What are the three considerations under the prudent person standard with respect to one's own property?

  • Safety of the investment, current market trends, liquidity of assets
  • Regulatory compliance, historical performance, diversification
  • Safety of the investment, potential for appreciation, expected income generation (correct)
  • Personal interest in investment, tax implications, future market value

    • How does the prudent person standard differ when it concerns another's property?

  • Requires more care because the fiduciary is responsible for someone else's asset. (correct)
  • Standard remains the same regardless of property ownership.
  • Focuses solely on the expected market value.
  • Less care is required since the owner assumes the risk.

    • What is the guiding principle of the Uniform Prudent Investor Act?

  • Budgeting for future expenses is given more importance than current investments.
  • Total asset management focuses on the performance of the entire trust portfolio. (correct)
  • Individual asset performance is prioritized over overall portfolio management.
  • Investments should only be made in low-risk options.

    • Under the prudent investor standard, which factor is least considered important?

    <p>The individual assets' performance in isolation</p> Signup and view all the answers

    Study Notes

    Prudent Standards of Care

    • Common Law (Pre-2004): Texas (and likely other jurisdictions) previously used a "prudent person" standard.
    • Prudent Person Standard Considerations: Safety of investment; potential appreciation in value; expected income generation.
    • Heightened Standard for Another's Property: More care is demanded when managing someone else's assets.
    • Prudent Investor Standard (Majority Rule): The Uniform Prudent Investor Act, enacted in Texas by 2004, is the modern approach.
    • Total Asset Management: Investment appropriateness is judged in light of the entire trust's portfolio performance.

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    Description

    This quiz explores the evolution of the prudent person standard in Texas investment law both before and after 2004. It discusses key considerations in asset management, including safety, potential appreciation, and income generation. Understand the implications of the Uniform Prudent Investor Act and total asset management.

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