PR 07240.018 Iowa
A. PR 01-225 Investment of Conserved Funds
Date: August 3, 2001
All four States in the Kansas City 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 Iowa, Kansas, Missouri, and Nebraska 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, the standards stated above appear to be the same for parents and for other types of trustees.
Which types of investments are considered appropriate under the “prudent man” rule?
Iowa has adopted the Uniform Prudent Investor Act. See Iowa Code Ann. § 633.4301.
Iowa law does not specify the types of investments considered “appropriate” or “inappropriate.” A trustee may invest in any kind of property or type of investment that is consistent with the rules set forth in the Iowa Uniform Prudent Investor Act. See Iowa Code Ann. § 633.4302(5). Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of the trustee's decision or action and not by hindsight. See Iowa Code Ann. § 633.4308.
Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?
Iowa law is silent on this issue. We assume the Iowa Uniform Prudent Investor Act would apply to this situation.
What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
Trustees shall exercise reasonable care, skill, and caution. Their investment and management decisions respecting individual assets must not be evaluated in isolation, but in the context of the portfolio as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the trust. See Iowa Code Ann. § 633.4302(1) and (2).
A trustee shall consider the following when investing and managing trust assets: (1) general economic conditions; (2) possible effect of inflation or deflation; (3) expected tax consequences of investment decisions or strategies; (4) role that each investment or course of action plays within the overall trust portfolio; (5) expected total return from income and the appreciation of capital; (6) other resources of the beneficiaries; (7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and (8) an asset's special relationship or special value. See Iowa Code Ann. § 633.4302(3)(a-h).
Trustees shall make reasonable efforts to verify facts relevant to the investment and management of trust assets. See Iowa Code Ann. § 633.4302(4).
Iowa law does not address a situation where a trustee has special skills or expertise.
Within a reasonable time after entering into a trusteeship or receiving trust property, a trustee shall review the trust property and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the terms of the trust and the requirements of the Iowa Uniform Prudent Investor Act. See Iowa Code Ann. § 633.4304.
Trustees have a duty of loyalty to beneficiaries and shall invest and manage the trust assets solely in the interest of the beneficiaries. See Iowa Code Ann. § 633.4305.
Trustees shall act impartially in investing and managing trust assets, taking into account any differing interests of the beneficiaries. See Iowa Code Ann. § 633.4306.
Trustees shall diversify the investments unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying. See Iowa Code Ann. § 633.4303.
Iowa law does not address the delegation of investment and management functions.