PR 07240.008 Connecticut
A. PR 01-225 Investment of Conserved Funds
Date: July 31, 2001
All six States in the Boston Region have adopted The Uniform Prudent Investor Act (UPIA) within their laws.
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.
State laws in Connecticut, Maine, Massachusetts, and Vermont 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. New Hampshire and Rhode Island do not make any specific rules on trusts for parents. It appears, however, that parents must follow the same rules which apply to all other types of trustees.
You asked us to research a representative payee's responsibilities for the conservation and investment of benefit payments. You asked that we consider this issue with respect to the laws of the six states in Region I. The specific questions presented by you concern which types of investments are considered appropriate for a trustee under the "prudent man" rule; whether parental-payees are permitted to invest differently than other types of payees; and what rules trustees must follow in making investments with funds that are held in trust. We herein provide answers to these questions with respect to each New England state.
Which types of investments are considered appropriate under the “prudent man” rule?
The Uniform Prudent Investor Act has been adopted as the Connecticut Uniform Prudent Investor Act. Connecticut General Statutes § 45a-541a - 541l.
No specific types of investments are required or restricted. No specific investment or course of action, taken alone, is prudent or imprudent. The trustee's investment and management decisions respecting individual assets shall be evaluated not in isolation but in the context of the trust portfolio as a whole and as part of the overall investment strategy having risk and return objectives reasonably suited to the nature of the trust. The trustee may invest in every kind of property and type of investment, subject to the prudent investor rule; but, must invest and manage the trust assets solely in the interest of the beneficiaries.
Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?
Connecticut law is silent on this issue. There is, however, an assumption that the prudent investor be impartial and with no conflict of interest. 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. There does not appear, however, to be any separate standard for parents acting as trustees for their children.
What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
Trustees have a duty to invest and manage trust assets as would a prudent investor by considering, among other factors, the general economic conditions; possible effects of inflation and deflation; tax consequences; needs for liquidity and regularity of income; and, the expected duration of the trust. In so doing the trustee must exercise reasonable care, skill and caution. They should diversify unless it is in the best interest of the beneficiary not to diversify. They should have a strategy and consider the fund as a whole and must be impartial with no conflict of interest. Connecticut General Statute § 45a-203 specifies that trust funds may be invested in such real estate mortgages as savings banks in the state may be authorized to invest in; deposited in savings banks or in time or savings deposits in state banks and trust companies and national banking associations in the state; and, invested in bonds and stocks including mutual fund accounts. It further permits the trustee to make any other kind of investment selected by the trustee with care of a prudent investor.
All six of our states have incorporated the Prudent Investor Act within their laws. 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. We would note that the Uniform Prudent Investor Act generally specifies that this rule may be "expanded, restricted, eliminated, or otherwise altered by the provisions of the trust." Thus, if SSA were to decide to restrict the types of investments that representative payees were to make with Social Security or Supplemental Security Income funds, the payee would be bound by those limitations and could not make other investments based on reliance upon the Uniform Prudent Investor Act. In addition, the Uniform Prudent Investor Act generally permits a trustee to delegate investment and management functions, and SSA might wish to consider placing some limitations or restriction on this right.