DEFINITION of ‘Nonlegal Investment’
A security of sub-investment quality made by a legal representative that does not conform to requirements of defined statutes. Nonlegal investments are typically securities that are not in compliance with statutory regulations for trust investments. They are not the same as unauthorized investments.
BREAKING DOWN ‘Nonlegal Investment’
Mandatory legal-list states provide a set list of investments in which a fiduciary must invest; permissive legal-list states provide a list of investments in which a fiduciary may invest. If the fiduciary invests in property or securities not on the list, it becomes their duty to provide the proprietary of the investment.
Some states will permit their trusts to hold nonlegal securities if they were previously legal investments whose status was altered by a change in law or if conditions have arisen since their purchase that would make the purchase not legal at the current time.