
Prudent Investor Rule
• Versus the Prudent Person Rule (which is):
• Gentrified notion
• Upper middle class
• Statutory list v. prudent person rule
• Restatement, UPC, ERISA – all prudent person rule – problems:
• Speculation rule – hard to define and discourages people from investing
• Harvard College:
• Reasonableness and prudence NOT perfection – see Prop 113.056
– Income and safety
• Misapplied by:
– Saying some activities are per se “speculation” (forbidden by UPIA 2e)
– – attorneys can attack on asset by asset basis (forbidden by UPIA 2b)
• This creates conservative investing
• Uniform Prudent Investors Act (UPIA)
• Texas and about 9 other states still have not signed on
• Ascher likes the “overall portfolio growth” standard in here
• To counteract misapplications above
• Ascher thinks we’re back to Harvard College
• See Texas Prop 113.056 – seems to remove “per se speculation” and removes asset by asset attack
• Retention of securities
• Decline in value on original investments
• See Prop 113.003 which seems to say can do anything with original investments – see also 113.056c
• Write this into will if want to protect in Texas – strange law
• Diversification
• Must diversify portfolio
• Jones
– Actual damages plus interest are damages measure
– But should it have been appreciation measure?
– Ascher thinks eventually will be appreciate damages
– Problems:
– Didn’t diversify
– Didn’t follow internal procedures
– Didn’t keep in mind widow’s needs
• No diversification wrt original assets in Texas – 113.003
– Nor wrt to other ones – 113.056c
• Must diversify with Restatement 3rd
• Mayo
– Conservation of trust property
– Judge says ignore grantor and what he says and invest in stocks, etal.
– Prop 112.031
• Pulitzer – p/ 705 in Langbein article – which says trust FBO beneficiary NOT trustee
– Couldn’t anticipate newspaper would lose money
– Langbein says ignore all economic restrictions in rules
– But I want to be able to leave farm in trust and not allow sale!!
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