If the onerous implications of estate planning weren't enough to discourage entrepreneurs, the process often has been complicated by the legal liabilities of estate trustees.

"Until recently, if a single 'imprudent' investment made by a trustee went sour, the trustee could be sued for losses by the trust's beneficiaries -- even if the whole portfolio were performing quite well," explains Jonathan Rikoon, chairman of the trusts and estates department at the New York law firm Mudge Rose Guthrie Alexander & Ferdon. It was tough, therefore, for business owners to persuade family members, friends, or colleagues to assume the responsibility.

Recently, however, New York, Illinois, and Florida -- three states considered leaders in estate-planning legal reform -- have adopted the Prudent Investor Rule. The new rule, Rikoon says, "brings trustee investment regulations in line with modern investment realities." It also reduces trustees' liability through such measures as the following:

· Adjustment of investment-measurement standards. "Now trustees are liable only if the portfolio as a whole, rather than any individual investment, underperforms," says Rikoon. "That reduces trustees' anxieties while allowing them to include countercyclical and other investments in the hope of producing a better-performing whole."

· Delegation of investment-management function. "In the past, family members might have been unwilling to serve as trustees if they lacked investment expertise, because they'd be liable for poor decisions made by any investment adviser they hired," notes Rikoon. "Now there's an entirely new system that governs the hiring and supervision of investment advisers. If trustees follow it, they're no longer liable for someone else's decisions. That's a big improvement."