You asked us to research, for the eight states in the Atlanta Region, the laws concerning
a representative payee's responsibilities for conserving and investing benefit payments.
The specific questions concern the types of investments considered appropriate; whether
parent-payees are permitted to invest differently than other types of payees; and
what rules are followed by trustees. Our responses to the questions, by state, are
as follows:
ALABAMA
What types of investments are considered appropriate under the "prudent man" rule?
The Alabama Code does not list any specific investments that may or may not be appropriate.
All fiduciaries, including trustees, are given wide discretion in determining how
to invest money, and courts will generally not interfere unless there is a clear abuse
of discretion. The Alabama code states that a fiduciary's exercise of discretion is
presumed to be "fair and reasonable." Ala. Code § 19-3A-104 (2001).
The courts have provided some clarification of the "prudent man" rule in Alabama.
In First Alabama Bank of Huntsville, N.A. v. Spragins, 475 So.2d 512 (Ala. 1985), the Alabama Supreme Court held that "[t]he trustee is
under a duty to the beneficiary in administering the trust to exercise such care and
skill as a man of ordinary prudence would exercise in dealing with his own property;
and if the trustee has or procures his appointment as trustee by representing that
he has greater skill than that of a man of ordinary prudence, he is under a duty to
exercise such skill." Id., at 516. In Birmingham Trust National Bank v. Henley, 371 So.2d 883 (Ala. 1979), the Court stated that the determination of "prudence"
is to be based upon the information available to the trustee at the time of the investment,
rather than upon subsequently discovered information. Id., at 895-96.
Under state law, are parent-payees permitted to invest the funds belonging to their
minor children differently than other types of payees?
We found no special provisions for parents of minor children.
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
Under the Alabama Code, there is a general duty of "good faith." See Ala. Code § 19-3A-104 (2001). In Spragins , the Alabama Supreme Court specifically stated that it was following the general
rules set forth in the Restatement (Second) of Trusts at § 174 (1959). 475 So.2d at 516. Under the Restatement , the standard of care and skill required of a trustee is the external standard of
a man of ordinary prudence in dealing with his own property. A trustee is liable for
a loss resulting from his failure to use the care and skill of a man of ordinary prudence,
although he may have exercised all the care and skill of which he was capable. On
the other hand, if the trustee has a greater degree of skill than that of a man of
ordinary prudence, he is liable for a loss resulting from the failure to use such
skill as he has. So, if the trustee procured his appointment as trustee by representing
that he has greater skill than that of a man of ordinary prudence, he is liable for
a loss resulting from the failure to use such skill. Whether the trustee is prudent
in the doing of an act depends upon the circumstances as they reasonably appear to
him at the time when he does the act and not at some subsequent time when his conduct
is called in question.
CONCLUSION
Each of the states within the Atlanta Region provides significant discretion to fiduciaries
making decisions regarding investments. Although each state may have a slightly different
definition of "prudent" man or person, only Georgia and Kentucky specifically delineate
what investments are acceptable, Alabama and Mississippi allow great latitude in what
investments are appropriate, and Florida, Georgia, North Carolina, South Carolina,
and Tennessee allow for investment of every kind and in every kind of property.