PR 07240.004 Arizona

A. PR 01-225 Investment of Conserved Funds

Date: August 7, 2001

1. SYLLABUS

In the San Francisco Region, the States of Arizona, California, and Hawaii have adopted The Uniform Prudent Investor Act (UPIA) within their laws. While Nevada has not adopted the UPIA, its laws appear to parallel those of the UPIA.

The UPIA was approved and recommended for enactment in all States by the National Conference of Commissioners on Uniform State Laws in 1994. The UPIA provides investment rules for trustees and like fiduciaries, including representative payees, that result in greater protection of assets while providing a prospect of better income

In each State, trustees must use reasonable care, skill, and caution with the interest of the beneficiary as the key element. There is an assumption that the trustee will be impartial with no conflict of interest. Trustees may invest in every kind of property and type of investment subject to the prudent investor rule. No specific types of investments are required or restricted. No specific investment or course of action is, taken alone, prudent or imprudent. Trustees should diversify investments unless it is in the best interest of the beneficiary not to diversify.

Arizona and Nevada's State laws are silent on the issue of whether parent payees are permitted to invest funds belonging to their minor children differently than other types of payees. However, it appears that both Arizona and Nevada agree in theory with the State laws for California and Hawaii which indicate that parents must follow the same standards as other types of trustees.

2. OPINION

QUESTION

On behalf of the Acting Associate Commissioner for Program Benefits, you requested that we research the laws in Region IX's states and territories concerning the authority of representative payees to invest conserved funds of beneficiaries. You noted that the applicable regulations provide that conserved funds be invested in accordance with the rules followed by trustees.

ANSWER

Arizona, California and Hawaii have adopted the Uniform Prudent Investor Act which sets out the duties of a trustee. Although the Act does not expressly mandate or prohibit specific types of investments, a trustee must exercise reasonable care, skill and caution in managing and investing assets. The Uniform Prudent Investor Act does not impose special rules on parents acting as trustees.

Guam and Nevada have not adopted the Uniform Prudent Investor Act. In Guam, a trustee must obey the trust and has a duty to provide reasonable security for the assets. He must at least accumulate simple interest on monies held in trust. A guardian must manage assets frugally and without waste, and apply the assets as necessary for the comfort and suitable support,

maintenance and education of the ward. In Nevada, a trustee may acquire any kind of investment which "persons of prudence, discretion and intelligence acquire or retain for their own account." A custodian of a minor's property must observe the standard of care that would be observed by a prudent person dealing with the property of another.

The following is a summary of each state/territory's law in alphabetical order.

SUMMARY

Arizona:

1. Which types of investments are considered appropriate under the "prudent man" rule?

The prudent investor rule is found at Arizona Revised Statutes Article 6, § 14-7601, Arizona Probate Code.

No specific types of investments are required or restricted. No specific investment or course of action is, taken alone, deemed prudent or imprudent. The trustee may invest in any kind of property or type of investment consistent with the standards of Article 6 of Arizona Probate Code.

2. Under State law, are parent payees permitted to invest the funds belonging to their minor children different than other types of payees?

Arizona law is silent on this issue.

3. What are the rules followed by trustees regarding the investment of funds with which they are entrusted?

The law of Arizona 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 should exercise reasonable care, skill and caution. Further, investment and management decisions should not be evaluated in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. Arizona Probate Code, § 14-7602.

Note, Arizona law also imposes a duty of loyalty and impartiality: A trustee must invest and manage trust assets solely in the interest of the beneficiaries. Arizona Probate Code §14-7605. If the trust has two or more beneficiaries, the trustee must act impartially in investing and managing the trust assets, taking into account any differing interests in beneficiaries. Arizona Probate Code § 14-7606.


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1507240004
PR 07240.004 - Arizona - 02/06/2004
Batch run: 01/27/2009
Rev:02/06/2004