more adaptable to their general business than farm mortgages.

Trust Companies, Building and Loan Associations and Thrift Unions

Trust companies, building and loan associations, and the many varieties of savings banks and credit unions all operate under state laws, and in almost all states invest in farm mortgages. Trust companies not only invest their own funds in farm mortgages but many of them maintain separate farm loan departments through which mortgage loans are made and the securities sold to investors. In some states these practices are restricted.

Building and loan associations have done a large farm mortgage business in Ohio, Pennsylvania, New York, Vermont, New Hampshire and Indiana. In Ohio the report of the building and loan associations for 1918 showed outstanding 11,971 farm loans aggregating $31,257,356.08. The purpose and fundamental principle of these institutions adapts them for the handling of farm mortgages. They have a variable capital which they loan on the amortization plan. The term of loans varies from five to forty years and their securities are taxexempt. The thrift unions are scattered and of little importance in the farm mortgage business except as small investors.

CHAPTER X

TRUSTEES AND ESTATES

The purpose of this chapter is to call the attention of those who have the responsibility of acting in a fiduciary capacity to the satisfactory character of investments secured by farm lands. In almost all cases a trustee under a will or by court appointment will find that funds invested in first mortgage or farm mortgage bonds based upon farm lands meet all legal requirements and secure the desired safety of investments. It is because of these qualifications that life insurance companies, endowed institutions, savings banks and those who wish a non-speculative investment are always glad to get farm mortgage securities for as long a term as possible. Because of the amount of material available on trusts and the duties and work of trustees, this chapter will be confined to trusts created by law affecting the disposal of and the management of the property of deceased persons, or special trusts imposed upon guardians of minors or other incompetent persons.

The law in regard to trusteeship varies in different states and the words trust and trustee cover a wide field, but there are certain points and general facts governing trusteeship which are comparable for all states. An attempt will be made to explain and elucidate on these general laws.

A trustee under a will or by the appointment of a court has certain duties and responsibilities which should be thoroughly considered and understood before accepting a trust. A trust is the confidence, or the obligation

arising from the confidence, placed in a person called the trustee to whom the legal title to property is conveyed for the benefit of another. The nature of the trust itself is an important factor as to the manner of conduct on the part of the trustee. A trust is usually imposed by a testator or court because of the limitations surrounding the beneficiaries in being able successfully to administer the estate suddenly coming into their possession. The testator is the maker of a will. There are certain factors which quite often prevent the administering of a trust as it should be. Quite often the qualifications necessary for competent trusteeship are superseded by personal friendship and affections, without sufficient thought of the ability and desire of the trustee to administer the estate as it should be done in its true spirit. Because of these considerations, laws have been enacted by the various states defining what can and cannot be done without imposing legal personal liability upon the trustee.

The trustee cannot, as a general rule, without incurring personal liability, take any compensation other than that established by law, cannot use the property for his personal use, cannot buy up claims against the beneficiaries at a discount and charge face value, and cannot buy nor borrow the property of the beneficiaries. He is charged with making safe investments, the trust allows him this power, and at the highest current rate consistent with the safeguarding of the principal, at the time of making the investment; and the trustee must account for all interest, commissions, or benefits received from any trust investment made. Losses where due diligence and discretion have not been exercised in the investment of trust funds, must be borne by the trustee and not the beneficiary, Usually the methods used by an average, prudent, careful man are taken as a standard of diligence and discretion.

Often, however, the terms of the trust specifically limit the trustee as to the kind and character of investments to be made, and he fully discharges his duty by making such investments as are desired and named, at the best rate he can secure, consistent with safeguarding the principal. Trusts usually are of a broader nature and hence a corresponding increase in the responsibility of the trustee.

This undoubtedly has led the various states to enact laws governing what are termed "legal investments," meaning thereby that the investments named, if employed by trustees in the discharge of their trust obligations, will act as a relief from responsibility and personal judgment, provided they have obtained a rate current and prevailing at the time of making the investment as prescribed. Investments made by trustees other than those prescribed by statute in the state having jurisdiction are made at the peril of the trustee personally, and beneficiaries can recover from the trustees if losses occur in such investments.

Common law prescribed one form of legal investment only, and that was government bonds. But the various states have found through experience that other securities are safe and desirable for this purpose and have prescribed next to government bonds, municipal issues of certain states and cities, first mortgages on real estate, bonds and stocks of certain corporations, deposits in savings banks, and other safe investments of a similar nature. Most states permit the investment of trust funds in productive real estate, and, where ordinary precaution and prudence have been used in obtaining a first lien on a given piece of real estate, the title of which is clear, and when at least 50 per cent margin obtains, and at a rate current at the date of making the loan, the mortgage so made forms what is quite generally considered an ideal investment for a trust fund.

Although the two classes of real estate loans, that is, city and farm real estate loans, have merits in common not possessed by other securities known as legal investments, such as simplicity, personal moral hazard, an opportunity for the use of good judgment, and independent action in the process of enforcing payment and higher rates of interest, the first mortgage farm loan is preferred.

As all industry depends upon the soil and its successful cultivation, the farm mortgage has the advantage of being secured by the source of material wealth. Property, anywhere, to have permanent value, must be based on the products of labor, and by reason of the farm production commercial activities arise, and are maintained. All securities would be valueless if we had long and continued crop failures. Another point to be considered is that farm real estate cannot be destroyed easily by the elements, as fire, floods, cyclones, and earthquakes. The value of improvements are eliminated in the granting of farm mortgages by trust companies. The elimination of insurance collateral has simplified the farm mortgage, the practice being to confine the basis of value to the land, exclusive of all improvements. While farmers are encouraged to have insurance, it is not compulsory, and is not needed as an added security where due caution has been used in making loans on farms.

Farm and city values can generally be determined by one or all of the following:

First, the assessed value; second, the selling price of land in the vicinity in which the real estate is located; third, the opinion of competent and reputable bankers and real estate men in the vicinity; and fourth, the interest returns the property will net from its rental value. Mortgages are usually given on from one-third to one-half the value of the farm.