You asked us to research the laws of the six states in Region VIII as those laws concern
a representative payee's responsibilities for the conservation and investment of benefit
payments.
The regulations provide that, after a representative has used benefit payments for
the current maintenance of the beneficiary, any remaining amounts are to be conserved
or invested on the beneficiary's behalf. See 20 C.F.R. § 404.2045. Any such "[c]onserved funds should be invested in accordance
with the rules followed by trustees." Id . We look to state law to determine how trustees should invest funds. See POMS § GN
00603.040A.
You have asked that we examine the laws of the states in our region to determine:
(1) What are the rules followed by trustees regarding the investment of funds with
which they are entrusted;
(2) What investments are considered appropriate under the "prudent man" rule; and
(3) Under State law, are parent payees permitted to invest the funds belonging to
their minor children differently than other types of payees? 1_/
Our answers for each state in Region VIII are set out below.
Utah
1. What are the rules followed by trustees regarding the investment of funds with
which they are entrusted?
Utah applies the prudent investor rule, which provides that “[a] trustee shall invest and manage trust assets as a prudent investor would, by
considering the purposes, terms, distribution requirements, and other circumstances
of the trust. In satisfying this standard, the trustee shall exercise reasonable
care, skill, and caution.” Utah Code Ann. § 75-7-302(3). The prudent investor rule “does not require a specific outcome in investing, and compliance with the prudent
investor rule is determined in light of the facts and circumstances existing at the
time of a trustee's decision or action and not by hindsight.” Id. § 75-7-302(9).
Trustees should diversify unless it is in the best interest of the beneficiary not
to diversify. They should review the funds reasonably soon after taking over. They
should have a strategy and consider the fund as a whole. They may delegate their investment
decisions, as long as they do it with care. If they have special skills, they are
required to use those skills. Id. § 75-7-302. If an investor wants to make an investment in which he has a substantial
beneficial interest, he must receive approval by the court. Id. § 75-7-404.
2. Which types of investments are considered appropriate under the “prudent man” rule?
No specific types of investments are required or restricted. No specific investment
or course of action is, taken alone, prudent or imprudent. The trustee may invest
in every kind of property and type of investment consistent with the prudent investor
rule. Id. § 75-7-302(6).
3. Under State law, are parent payees permitted to invest the funds belonging to
their minor children differently than other types of payees?
Utah law is silent on this issue. However, there is an assumption that the prudent
investor be impartial and have no conflict of interest. To the extent that a family
relationship may be a barrier to such impartiality and may create a conflict of interest,
one may need to scrutinize these funds more carefully. As discussed below, an investor
must obtain approval by the court for any transaction involving conflict of interest.
CONCLUSION
Two of our six states, Colorado and Wyoming, have incorporated the Uniform Prudent
Investor Act within their laws. The other four states have incorporated most of the
theory behind the Uniform Prudent Investor Act. We believe that a fair reading of
the laws in each of these states would require that a representative payee use reasonable
care, skill and caution with the interest of the beneficiary as the key element. We
believe that the facts and circumstances of each case determine whether the representative
payee has acted with the required care, skill and caution and that the test is a test
of conduct and not of results.
1_/ We have reordered the questions presented in your May 24, 2001, memorandum.