Prudent Person Rule


Also found in: Financial.

Prudent Person Rule

A standard that requires that a fiduciary entrusted with funds for investment may invest such funds only in Securities that any reasonable individual interested in receiving a good return of income while preserving his or her capital would purchase.

Historically known as the prudent or reasonable man rule, this standard does not mandate an individual to possess exceptional or uncanny investment skill. It requires only that a fiduciary exercise discretion and average intelligence in making investments that would be generally acceptable as sound.

References in periodicals archive ?
4) This standard is more stringent than the previously used prudent person rule, which required a trustee to invest funds as a person of prudence, with discretion, care, and intelligence.
Under the Uniform Prudent Investor Act of 1994, the prudent investor rule replaced the prudent person rule (the prudent person rule is also known as the prudent man rule).
However, other strategies such as appropriately applying the prudent person rule could still be used, though taxpayers should note the increasing difficulty of challenging the proposed regulations when they are finalized.