PR 07235.049 Utah

A. PR 00-096 "Prudent Man" Provisions in the State of Utah (Bonnie L. S~ for Kyle D. H~, ~)

DATE: March 22, 2000

1. SYLLABUS

The State of Utah applies both the "prudent man" standard and the "prudent investor rule" to certain investments made by trustees of property of minors and disabled persons.

2. OPINION

You have asked us whether the State of Utah applies the "prudent man" standard to certain investments made by Bonnie L. S~ on behalf of her son, Kyle D. H~, and if so, whether the investments comply with that standard. Utah does apply the prudent man standard to such investments, and these particular investments appear to comply with it.

These are the facts as we understand them. Ms. S~ has invested Kyle H~'s DIB payments in the Invesco Balanced Fund, the Janus Growth and Income Fund, and the Schwab Money Market Account. We do not know what percentage of H~'s benefits have been invested each fund.

The Invesco Balanced Fund allocates investments among common stocks and fixed income securities. It had total returns of 12.90% for 1998, 29.27% for 1997, and 20.93% for 1996. The Janus Growth and Income Fund allocates investments primarily among common stocks. It had total returns of 16.73% for 1998, 37.78% for 1997, and 25.56% for 1996. We have no information on the Schwab Money Market Account, but we will assume this to be a low-risk investment with a low annual rate of return (i.e. 5% or less).

Utah applies the "prudent investor rule" to trustees of property of minors and disabled persons. Utah Code Ann.. §§ 75-5-417, 75-7-302. The law of Utah 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." Utah Code Ann.. § 75-7-302. "In satisfying this standard, the trustee is required to exercise "reasonable care, skill and caution." Id. Assets of the trust are not to be evaluated in isolation, but in the context of the trust portfolio as a whole. Id.

The prudent investor rule does not classify specific investments or courses of action as prudent or imprudent. Restatement (Third) of Trusts, § 227. Although the rule imposes a duty to use caution and a degree of conservatism in investing, "reasonably sound diversification is fundamental to the management of risk," and "trustees ordinarily have a duty to diversify investments." Id. Under the rule, "the permissible investments of trustees are not confined to 'reliable' securities of governments and 'established' corporations." Id. "Higher risk domestic and foreign stocks are also permissible investments for trustees under the prudent investor rule," and "the stocks of small, expanding companies ('venture capital') are not abstractly characterized as impermissible trust investments." Id.

Based on these principles, Ms. S~'s decision to invest Kyle H~'s DIB payments in these reputable mutual funds and a money market fund does not, in our opinion, violate the prudent investor rule.


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PR 07235.049 - Utah - 02/06/2004
Batch run: 04/25/2016
Rev:02/06/2004