Trustees have a duty to “manage the trust assets solely in the interest of the beneficiaries [,]” HRS § 554C–5 (2012), which “precludes a trustee from dealing with trust assets to his own advantage or benefit[ ]” without the beneficiaries' consent. Steiner v. Hawaiian Trust Co., 47 Haw. 548, 558, 393 P.2d 96, 103 (1964). The record shows that although NePage and NePage–Fontes initially agreed to NePage's receipt of the excess distribution, NePage–Fontes began objecting to the excess distribution in 1998.

In the absence of specific directions in the trust instrument concerning the investment of trust funds, our court has held that the trustee's duties to the beneficiaries are controlled by statute. Steiner v. Hawaiian Trust Co., 47 Haw. 548, 561-62, 393 P.2d 96, 105 (1964). The statute applicable to this case, Hawaii Revised Statutes (HRS) § 406-22(a) (1968), codified the generally accepted "prudent investment rule.

In diversifying, the trustee should consider, among others, the following factors: (1) the purposes of the trust; (2) the amount of the trust estate; (3) financial and industrial conditions; (4) the type of investment, whether mortgages, bonds, or shares of stock; (5) distribution as to geographical location; (6) distribution as to industries; (7) the dates of maturity.Steiner v. Hawaiian Trust Co. (1964), 47 Hawaii 548, 562, 393 P.2d 96. Id. at 564, 393 P.2d 96.

Cf., e.g., Mid-Pacific Dress Mfg. Co., Ltd. v. Cadinha, 36 Haw. 732, 742 (1944); In re Guardianship of Richard Smart, 32 Haw. 943, 948 (1934). See Steiner v. Hawaiian Trust Co., 47 Haw. 548, 393 P.2d 96 (1964). The City gains no "gold stars" by its claim that it was in fact giving better and a higher quality security to the bondholders by investing in U.S. Treasury bonds and bank time deposits.

See, e.g., In re Mueller's Trust (1965), 28 Wis.2d 26, 135 N.W.2d 854; Steiner v. Hawaiian Trust Co. (1964), 47 Haw., 393 P.2d 96. R.C. 1109.10(B) and 2109.38 are not to the contrary, as those statutes relieve the trustee only from liability for retention of securities which are not listed in R.C. 2109.37 and 2109.371 ("non legals"), and do not relieve the trustee from its general obligation of due care and prudence.

Courts have held that a violation of the prudent man rule or similar standard is a breach of trust creating liability for any loss caused thereby. Steiner v. Hawaiian Trust Co., 393 P.2d 96 (1964); In re Mendleson's Will, 261 N.Y.S.2d 525, 541 (1965), which states "if the prudent thing to do was sell, failure to sell was a breach of duty." The court in the present case charged the jury that if a trustee has greater skill than the man of ordinary prudence he is under a duty to exercise it. There was no objection to this charge and the principle is supported in law and was authorized by the facts of this case.

Except where impossible, illegal, or where a change of circumstances occurs which would impair the purposes of the trust, the nature and extent of the duties and powers of a trustee are determined by the trust agreement. See Baldus v. Bank of Cal., 12 Wn. App. at 628; Steiner v. Hawaiian Trust Co., 47 Haw. 548, 562-63, 393 P.2d 96 (1964). Although in some future case we may be called upon to determine if a corporate professional trustee should be held to a higher standard because of the language in the trust instruments, this issue need not be decided here.

Although the language in the Hoffman instrument is somewhat stronger than that in the instrument before us the difference is not so great as to make the cases distinguishable. In Steiner v. Hawaiian Trust Co., 393 P.2d 96 (1964), the court interpreted an instrument which like ours authorized the trustee to retain the initial investment. In addition the settlor had communicated to the trustee his desire that certain stock be retained.

We now examine the question of the trustee's alleged negligence. In the exercise of its discretion under the plenary powers of the Trust Agreement over trust property, First Hawaiian Bank as trustee must be held to the standard of ordinary care and diligence. Steiner v. Hawaiian Trust Co., 47 Haw. 548, 393 P.2d 96 (1964); Hartman v. Bertlemann, 39 Haw. 619 (1952). Where discretion is conferred upon a trustee with respect to the exercise of a power, its exercise is not subject to interference by the court except to prevent an abuse by the trustee of his discretion.

Although in Dowsett this court was concerned with the actions of a trust company, the "prudent investment rule" applies equally to the trustees of the Bishop Estate. Application of this rule clearly requires consideration of factors external to the sale of property in judging a trustee's action, and it was so applied in both Dowsett v. Hawaiian Trust Co., supra, and its companion case, Steiner v. Hawaiian Trust Co., 47 Haw. 548, 393 P.2d 96 (1964). According to the law of this jurisdiction prior to this case, then, the benefits which were likely to accrue eventually to the estate from the KDC-Post agreement were a proper element to be considered in judging the trustees' evaluation of the Bishop-Post agreement.