TN 1 (01-05)
PR 07230.053 Washington
A. PR 05-046 Investment of Conserved Funds - Victoria B~ for Jacqueline A. B~, ~
DATE: October 4, 2000
The representative payee's decision to invest conserved funds in a money market account and in stocks appears to be a prudent investment under Washington State law.
You have requested an opinion as to whether a representative payee's investment of conserved funds in a money market account and stocks is a prudent investment under Washington law.
Victoria B~, the representative payee for Jacqueline A. B~, has indicated on her Representative Payee Report that she has $7,494 of conserved funds invested in a money market account and in stocks. She did not give any other information about the money market account or the stocks.
The Social Security regulation at 20 C.F.R. § 404.2045(b) states:
Preferred investments. Preferred investments for excess funds are U.S. Savings Bonds and deposits in an interest or dividend paying account in a bank, trust company, credit union, or savings and loan association which is insured under either Federal or State law. The account must be in a form which shows clearly that the representative payee has only a fiduciary and not a personal interest in the funds. . . .
The Program Operations Manual System (POMS) states that direct deposit payments may be made to money market accounts and share draft accounts, as well as other investment accounts. POMS GN 02402.030. For other investment accounts, the representative payee must comport to State law applicable to trustees. GN 00603.040.
Washington does have a prudent investor standard, which incorporates a total asset management approach. Specifically:
fiduciary is authorized to acquire and retain every kind of property. In acquiring, investing, reinvesting, exchanging, selling and managing property for the benefit of another, a fiduciary, in determining the prudence of a particular investment, shall give due consideration to the role that the proposed investment or investment course of action plays within the overall portfolio of assets. In applying such total asset management approach, a fiduciary shall exercise the judgment and care under the circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, and if the fiduciary has special skills or is named trustee on the basis of representations of special skills or expertise, the fiduciary is under a duty to use those skills.
West's RCWA 11.100.020(1). There are a number of factors that should be considered in applying this total asset management approach:
(a) The probable income as well as the probable safety of their capital;
(b) Marketability of investments;
(c) General economic conditions;
(d) Length of the term of the investments;
(e) Duration of the trust;
(f) Liquidity needs;
(g) Requirements of the beneficiary or beneficiaries;
(h) Other assets of the beneficiary or beneficiaries, including earning capacity; and
(i) Effect of investments in increasing or diminishing liability for taxes.
West's RCW 11.100.020(2).
Within the limitations of the total asset management approach, a fiduciary is authorized to invest in stocks, preferred or common, if it is an investment "persons of prudence, discretion, and intelligence acquire for their own account." West's RCW 11.100.020(3). The fiduciary is also authorized "to invest in new, unproven, untried, or other enterprises with a potential for significant growth whether producing a current return, either by investing directly therein or by investing as a limited partner or otherwise in one or more commingled funds which in tern invest primarily in such enterprises." West's RCW 11.100.023. However, the aggregate amount of investments held under the authority of section 11.100.023 cannot exceed ten percent of the net fair market value of the trust corpus.
Finally, a trustee is under a duty to diversify investments unless circumstances dictate that it is not prudent to diversify. Estate of Cooper v. Cooper, 81 Wash.App. 79, 88-89, 913 F.2d 393, 398 (1996); Baker Boyer Nat'l Bank, 43 Wash.App. 673, 679-80, 719 P.2d 583, 588 (1986).
In sum, the representative payee's decision to invest conserved funds in a money market account and in stocks appears to be a prudent investment under Washington law. However, we suggest that you obtain more specific information from the representative payee about the money market account and the stocks, i.e., what amount is invested in each, and the rate of return.