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
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
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.
1. What are the rules followed by trustees regarding the investment of funds with
which they are entrusted?
Colorado applies the prudent investor rule, which is found at Colo. Rev. Stat. Ann.
§ 15-1.1-101. Colorado law 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.” Id. § 15-1.1-102(a). 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 must invest
solely in the interest of the beneficiaries and must be impartial. A trustee may delegate
investment and management functions that a prudent trustee of comparable skills could
properly delegate under the circumstances. A trustee with special skills has a duty
to use those special skills or expertise. Id. §§ 15-1.1-103-109.
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, subject to the prudent investor
rule. Id. § 15-1.1-102(e). Although Colorado adopted the Uniform Prudent Investor Act on July
1, 1995, a prior Colorado statute, which has not been repealed, states:
[F]iduciaries are authorized to acquire and retain every kind of property, real, personal,
and mixed, and every kind of investment, specifically including, but not by way of
limitation, bonds, debentures, and other corporate obligations, stocks, preferred
or common, securities of any open-end or closed-end management type investment company
or investment trust, and participations in common trust funds, which men of prudence,
discretion, and intelligence would acquire or retain for the account of another.
Id. § 15-1.1-304.
3. Under State law, are parent payees permitted to invest the funds belonging to
their minor children differently than other types of payees?
Colorado law is silent on this issue. However, there is an assumption that the prudent
investor be both loyal and impartial. 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. The standard, however, appears to be identical.
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.