You asked us to provide an opinion examining the law of each state and district within
our region with respect to the following three questions:
Which types of investments are considered appropriate under the "prudent man" rule?
What are the rules governing trustees regarding the investment of funds with which
they are entrusted?
Under state law, are parent payees permitted to invest the finds belonging to their
minor children differently than other types of payees?
INVESTMENTS UNDER THE "PRUDENT MAN" RULE
The Programs Operations Manual System (POMS) provides that representative payees must
invest benefits "in accordance with the rules applying to the investments of trust
estates by trustees." POMS GN 00603.040(A). If a state applies a "prudent man" rule to investments by fiduciaries, representative
payees must invest benefits in a manner that complies with this rule. POMS GN 00603.040(B). Accordingly, we looked at state law in each of our five states and our one district
in order to determine what investments are appropriate under the "prudent man" law
as applied in that state or district.
Pursuant to the Delaware Code, the term "fiduciary" includes trustees. Del. Code Ann.
tit. 12, § 3301(b) (2000). Delaware law provides that a fiduciary, when investing,
"shall act with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with such
matters would use to attain the purposes of the account." Del. Code Ann. tit. 12,
§ 3302(a) (1999). In making investment decisions, a fiduciary may consider "the general
economic conditions, the anticipated tax consequences of the investment and the anticipated
duration of the account and the needs of its beneficiaries." Id.
Delaware law further provides that a fiduciary may acquire:
Every kind of investment, wherever located, whether within or without the United States,
including, but not by way of limitation, bonds, debentures and other corporate obligations,
stocks, preferred or common, shares or interests in common funds or common trust funds,
securities of any open-end or closed-end management type investment company or investment
trust registered under the Federal Investment Company Act of 1940 (15 U.S.C. § 801-1
et seq.), options, futures, warrants, limited partnership interests and life insurance.
Del. Code Ann. tit. 12, § 3302(b) (1999). The list of possible investments is not
intended to be exclusive, and "no investment made by a fiduciary shall be deemed imprudent
solely because the investment is not specifically mentioned in this subsection." Id. The Supreme Court of Delaware has rejected the old approach of prohibiting trustees
to invest in "stocks, bonds or other securities of a private corporation without permission
in the terms of a trust or in a statute." Law v. Law, 753 A.2d 443, 448 (Del. 2000).
RULES GOVERNING TRUSTEES REGARDING INVESTMENT
Conserved funds must be invested in accordance with the "rules followed by trustees."
20 C.F.R. § 2045(a) (2000). These rules are determined by reference to state law.
POMS GN 00603.040. Accordingly, we looked at the rules followed by trustees in each state and district
within our region to determine what rules representative payees should follow in investing
In Delaware, a trustee "owes the beneficiaries [of the trust] the duty of loyalty
and must exclude all self interests." Gans v. MDR Liquidating Corp., No. 9630, 1991 WL 114514, * 3 (Del. Ch. June 25, 1991). A trustee also has a duty
to diversity trust assets unless it is imprudent to diversify. Id. at * 5. Finally, a trustee must "ensure the integrity of the [trust] corpus" in addition
to "correctly administering the trust." Law v. Law, 753 A.2d 443, 447-48 (Del. 2000).
PARENTS AS PAYEES
Delaware laws governing investments by a trustee also apply to a guardian investing
the funds of his or her minor ward. Del. Code Ann. tit. 12, § 3301(b) (1999). "Guardian"
is defined as
"a person appointed or qualified by a court to act as general, limited or temporary
guardian of a minor's property or a person legally authorized to perform substantially
the same functions, including a conservator." Del. Code Ann. tit. 12, § 4501(8) (1999).
Accordingly, if a parent has been appointed or qualified by a court to act as a guardian,
he or she is bound in managing the funds of his or her children by the same rules
as those applying to a trustee.
Delaware statutes and case law do not address the issue of what standard a non-guardian
parent must follow in investing the funds of his or her minor children.