How does active trust management differ from passive management?

Active trust management fundamentally differs from passive management in that it involves ongoing decision-making and adjustments to a trust's portfolio based on current market conditions, investment opportunities, and changes in the beneficiaries' needs or objectives. In active management, the fiduciary or manager actively seeks to outperform a benchmark or target return by making informed choices about asset allocation, investment selection, and timing of trades. This hands-on approach can lead to more tailored investment strategies that aim to respond to market dynamics and optimize returns.

In contrast, passive management typically involves a more hands-off strategy where the manager aims to replicate the performance of a specific market index without making frequent changes. This approach relies on the premise that markets are efficient and that it's challenging to consistently outperform them through active decision-making. As a result, passive management usually incurs lower costs and requires less ongoing intervention, focusing instead on long-term performance rather than reacting to short-term market movements.

The distinction is crucial for fiduciaries who must determine the most effective management strategy for a trust based on its unique circumstances and goals.