Probate Pitfalls (Investing Estate Assets)

The Wall Street Journal has a great article describing some of the mistakes that can be made when settling an estate.  The portion that caught my eye and inspired this post was the section on investing estate assets. While you can and sometimes should invest estate assets you can run into trouble if things don't work out.

One father named his three adult sons as executors under his estate plan, which included a pecuniary formula for funding the trust for the surviving spouse, with the balance of the estate passing to the sons. The estate consisted largely of high-quality bonds, which the sons sold shortly after their father’s death to invest in a much riskier portfolio of small-cap stocks, which they hoped would grow, Mr. Magill says. But the value of those stocks declined more than 50% before the spouse’s trust was funded at the full amount required. The sons’ resulting share bore the entire decline in the stocks’ value, resulting in a loss to them of more than $5 million.

In Oregon the General Duties of the Personal Representative is to "preserve, settle and distribute the estate in accordance with the terms of the will and ORS chapters 111, 112, 113, 114, 115, 116 and 117 as expeditiously and with as little sacrifice of value as is reasonable under the circumstances."

When the Estate has surplus assets that are not needed for the administration, the surplus assets should be invested to generate interest and income.  Oregon's Probate Code section ORS 114.305 (6), focuses on short-term investments of estate assets:

Deposit funds not needed to meet currently payable debts and expenses, and not immediately distributable, in bank or savings and loan association accounts, or invest the funds in bank or savings and loan association certificates of deposit, or federally regulated money-market funds and short-term investment funds suitable for investment by trustees under ORS 130.750(Trustees duty to comply with prudent investor rule) to 130.775 (Trust language authorizing investments permitted under prudent investor rule), or short-term United States Government obligations.

Of course, this is just scratching the surface of the issues that can arise from investing estate assets.  What is important to remember is that personal representatives in Oregon are only held to the standard of a prudent investor.  (Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustees decision or action and not by hindsight. ORS 130.770)