As an estate planning attorney in San Diego, I often encounter clients who wish to align their financial holdings with their personal values, and this frequently extends to their trusts; it’s absolutely possible to instruct your trust to avoid investing in companies involved in industries like alcohol or tobacco, and this is generally achieved through what are known as ‘negative screens’ or ‘ethical investing’ clauses within the trust document.
What are Socially Responsible Investing (SRI) options?
Socially Responsible Investing (SRI), and its more modern form, Environmental, Social, and Governance (ESG) investing, have gained tremendous traction, with assets under management reaching over $51.1 billion in 2022 according to the Forum for Sustainable and Responsible Investment. These strategies allow you to prioritize investments in companies demonstrating positive social or environmental impact, or conversely, exclude those involved in activities you deem harmful; for example, a client, a retired teacher named Mrs. Eleanor Vance, came to me with a deep conviction against profiting from substances she saw as detrimental to society. She wanted to ensure her trust wouldn’t indirectly support industries she’d spent her career discouraging; a clear and specific clause was drafted, detailing the prohibited investments.
How do I specify ethical investment preferences in my trust?
Specifying these preferences requires precise language in your trust document; vague statements like “avoid unethical investments” are open to interpretation and can lead to disputes. Instead, list specifically the types of companies or industries you wish to exclude – “no investments in companies deriving more than 10% of their revenue from the production or sale of alcoholic beverages or tobacco products” is a far more enforceable directive. You can also include a ‘conscience clause,’ empowering the trustee to make investment decisions aligned with your documented values, even if those decisions slightly impact potential returns; it’s important to remember that restricting investment options may reduce diversification, potentially affecting overall portfolio performance, and a frank discussion with your financial advisor and estate planning attorney is essential.
What happens if my trustee doesn’t follow my investment restrictions?
A failure to adhere to these restrictions constitutes a breach of fiduciary duty, and you, or your beneficiaries, can pursue legal recourse; however, this can be a complicated process. I once represented a family whose patriarch had meticulously outlined his ethical investment preferences, only to discover after his passing that the trustee had knowingly invested in a major tobacco conglomerate. The ensuing legal battle was lengthy and emotionally draining; the beneficiaries had to demonstrate that the trustee was aware of the restrictions and intentionally disregarded them. It underscored the importance of selecting a trustee who not only understands their fiduciary duties but also genuinely respects your values; a well-drafted trust document, with clear and enforceable provisions, is your first line of defense.
Can ethical investing actually impact my portfolio’s performance?
For years, there was a misconception that ethical investing meant sacrificing returns, but research increasingly shows this isn’t necessarily true; a study by Oxford University found that companies with high ESG scores often exhibit lower volatility and, over the long term, can outperform their peers. I had a client, Mr. Arthur Bellweather, a former engineer with a passion for renewable energy, who instructed his trust to focus on sustainable investments. Initially, he worried about lower returns, but over a decade, his portfolio not only matched market averages but also benefited from the growth of the green technology sector. His foresight and commitment to his values paid off both financially and personally; a well-structured ethical investment strategy can align your financial goals with your principles, offering both a return on investment and a sense of purpose.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
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