California law codifies this rule as follows: "the trustee shall administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument." Probate Code § 16040(a).
While this law is certainly written in legalese, it can still be translated into understandable language. Stated alternatively, the prudent trustee rule requires the trustee to act sensibly or reasonably given the situation and reflective of the terms of the trust. It should emphasized that the standard is flexible in that it accounts for various circumstances. What can be considered reasonable in one instance can be considered unreasonable in another.
For example, if the trust owns rental property and the tenants have responsibly occupied the property for years, e.g. timely payment of rent each month and proper upkeep of the house, it would be reasonable for the trustee to only have to periodically check the property. Frankly frequent visits to the property might engender a lack of trust with the tenants given their responsible tenancy. Conversely, if the rental property has frequent turnover and is located in a gritty neighborhood, the trustee would reasonably be expected to visit the property regularly to combat these issues. As the saying goes, "where there is smoke, there is fire." Hence, the reasonable trustee would comply with prudent trustee rule by being vigilant to the issues surrounding the rental property. Sadly, the latter situation is much more common than the former situation. There are countless stories of absentee landlord-trustees who simply collect rent and are oblivious to the plight of their tenants.
It should also be noted that the prudent trustee rule is not violated simply because a loss has occurred. Even the most reasonable trustee can make the occasional mistake and California law does not impose on them the responsibility of infallibility. Pillsbury v. Karmgard (1994) 22 CA4th 743. This is particularly helpful because if infallibility is required, a trustee might become very hesitant to perform virtually any affirmative act out of fear of liability. Hence California law provides the trustee with some qualified wiggle room.
If the prudent trustee rule is violated, such is considered a breach of trust. Consequently, a trust beneficiary can then petition the competent probate court to have the trustee removed for breach of trust.
