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
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.