Opinion ID: 2074647
Heading Depth: 1
Heading Rank: 2

Heading: Commodity trading by a trustee.

Text: Patricia claims the court erred in finding the trust does not authorize commodity trading with trust funds. The propriety of a trust investment is measured by the terms of the trust and the prudent-man rule. The prudent-man rule is codified at SDCL 55-5-1 and requires a fiduciary or trustee to: [E]xercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. Although a particular investment may be impermissible under the prudent-man rule, the terms of the trust may authorize such an investment. See Hoffman v. First Virginia Bank of Tidewater, 220 Va. 834, 263 S.E.2d 402 (1980); Restatement (Second) Trusts § 227 (1959). In the present case, the terms of the trust do not authorize any exception to the prudent-man rule. The pertinent language of Hadleigh Hyde's will provides: In general the trustee shall have every power and authority over the trust estate and the several items of property thereof, that the trustee would have as a competent individual, if he or she were the absolute owner thereof except that the trustee may not do anything contrary to the express provisions hereof or inconsistent with the intention to create and maintain a trust as herein set forth. Nothing in this language indicates a trustee is to have investment powers beyond that authorized by the prudent-man rule in SDCL 55-5-1. In fact, this language appears to require compliance with the prudent-man rule. We conclude that the prudent-man rule generally does not authorize trust investments in commodities. Comment f of Restatement (Second) Trusts § 227 specifies that securities for purposes of speculation are not proper trust investments. Accord Sartore v. Buder, 759 P.2d 785 (Colo.Ct.App.1988) aff'd 774 P.2d 1383 (Colo.1989); Russell v. Russell, 427 S.W.2d 471 (Mo.1968). Since commodity trading is speculative in nature, it must be considered an improper trust investment. [] Furthermore, the language of the will specified that the trustee may not do anything inconsistent with the intention to create and maintain a trust. Commodity trading is inconsistent with the creation and maintenance of a trust. As explained in Bogert, The Law of Trusts and Trustees § 612 at 24 (rev. 2d ed. 1980): Since the purposes of trusts are almost always the production of an adequate income for the interim estates and the conservation of principal until a future date, investments may rarely, if ever, be made from a speculative point of view. Commodity trading does not comply with the trust purpose of production of income and conservation of principal. Therefore, Patricia breached the trust when she gave John trust funds for commodity trading.