Reversing the Nondelegation Rule of Trust-Investment Law

Abstract

The nondelegation rule has been a familiar feature of the doctrinal landscape of the Anglo-American law of trusts. In the formulation of the Restatement of Trusts (Second) of 1959, the rule places the trustee "under a duty to the beneficiary not to delegate to others the doing of acts which the trustee can reasonably be required personally to perform." The nondelegation rule was thought to apply with particular force to the trustee's investment responsibilities. The Restatement (Second) says flatly: "A trustee cannot properly delegate to another power to select investments." The new Restatement of Trusts (Third): Prudent Investor Rule, completed in 1992, rejects the nondelegation rule of the 1959 Restatement. The 1992 Restatement-hereafter, Restatement (Third)-is a partial revision of the Restatement (Second), limited to matters bearing on trust-investment law. Not only does the Restatement (Third) approve delegation, it imposes upon the trustee a positive duty to act prudently in considering "whether and how to delegate" investment functions. A projected Uniform Prudent Investor Act (UPIA), scheduled for approval by the Uniform Law Commission in 1994, implements the prodelegation position taken in the Restatement (Third) and articulates standards for effective delegation. The changed attitude toward delegation that characterizes the Restatement (Second) and UPIA was foreshadowed across the previous decades in a series of influential enactments that endorsed the delegation of fiduciary investment responsibilities: the Uniform Trustees' Powers Act in 1964, the Uniform Institutional Management of Funds Act (UMIFA) in 1972, and ERISA, the federal pension law, in 1974.