PR 07240.020 Kentucky
A. PR 01-225 Investment of Conserved Funds
Date: August 13, 2001
All eight States in the Atlanta Region follow slightly different interpretations of the “prudent” person (investor) rule. Each State provides some degree of discretion to fiduciaries, including representative payees, when making decisions regarding investments. Only Georgia and Kentucky specify what investments are acceptable. Alabama and Mississippi allow greater latitude regarding what investments are appropriate. The States of Florida, North Carolina, South Carolina, and Tennessee allow for every kind of investment.
In all States, no special provisions were found for parents to follow when investing funds belonging to their minor children. All fiduciaries, including the parents of minor children, are required to follow the same general rules.
Trustees are required to 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.
You asked us to research, for the eight states in the Atlanta Region, the laws concerning a representative payee's responsibilities for conserving and investing benefit payments. The specific questions concern the types of investments considered appropriate; whether parent-payees are permitted to invest differently than other types of payees; and what rules are followed by trustees. Our responses to the questions, by state, are as follows:
What types of investments are considered appropriate under the "prudent man" rule?
Kentucky does not denominate their legal standard for investing funds controlled by a third party as a "prudent man" standard. Kentucky does, however, direct by statute that any fiduciary holding funds for loan or investment may invest them in:
(a) Bonds or other interest-bearing obligations of the federal government;
(b) Bonds, state warrants and other interest-bearing obligations of this state;
(c) Obligations issued separately or collectively by or for federal land banks, federal intermediate credit banks and banks for cooperatives under the Act of Congress known as the Farm Credit Act of 1971, 85 Stat. 583, 12 U.S.C. Sec. 2001 and amendments thereto;
(d) Notes and bonds secured by mortgage or trust deed insured by the federal housing administrator, obligations issued or insured by the federal housing administrator, and securities issued by national mortgage associations;
(e) Obligations representing loans and advances of credit that are eligible for credit insurance by the federal housing administrator, and the fiduciary may obtain such insurance;
(f) Loans secured by real property or leasehold, that the federal housing administrator insures or makes a commitment to insure, and the fiduciary may obtain such insurance;
(g) Real estate mortgage notes, bonds and other interest-bearing or dividend-paying securities, including securities of any open-end or closed-end management type investment company or investment trust registered under the Federal Investment Company Act of 1940 or units of common trust funds managed by the fiduciary, which would be regarded by prudent businessmen as a safe investment. The fact that the fiduciary is providing services to the foregoing investment company or trust as investment advisor, custodian, transfer agent, registrar or otherwise shall not preclude the fiduciary from investing in the securities of such investment or trust;
(h) Real estate;
(i) Life insurance, endowment and annuity contracts issued by legal reserve companies authorized to do business in this state, after obtaining the approval of the District Court for such investment. The fiduciary may select any optional settlement provided in a policy maturing by death or as an endowment;
(j) Notes, other interest-bearing obligations, and purchases of participations in such instruments, that are guaranteed in whole or in part by the United States of America or by any agency or instrumentality thereof;
(k) Certificates of deposit and savings accounts of any state or national bank whose deposits are insured by the Federal Deposit Insurance Corporation and whose main office is in this state, including itself, if such fiduciary is a bank. Such investments shall be insured by the Federal Deposit Insurance Corporation and the amount of the investments shall not exceed the limits of insurance of the Federal Deposit Insurance Corporation; and
(l) United States government securities or United States government agency securities, the payment of the principal and interest on which the full faith and credit of the United States is pledged, said investments being made under the terms of a repurchase agreement between the fiduciary and any state or national bank whose main office is in this state, including itself, if such fiduciary is a bank.
Ky. Rev. Stat. Ann. § 386.020 (2000).
Under state law, are parent-payees permitted to invest the funds belonging to their minor children differently than other types of payees?
No. The relevant Kentucky statutory section applies to any fiduciary holding funds for loan or investment. There are no exceptions for parents of minor children. Ky. Rev. Stat. Ann. § 386.020 (2000),
What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
No cases have interpreted the newly enacted statute regarding investment by a fiduciary. However, caselaw interpreting common law principles of fiduciary investment authorizes fiduciaries to invest in dividend paying securities which would be regarded by prudent businessmen as safe investments. See Columbia Trust Co. v. Meek, 294 Ky. 122, 171 S.W.2d 41 (Ky. 1943). Also, "[i]t is common knowledge that prudent businessmen do not confine their investments to government securities or real estate loans." People's State Bank & Trust Co. v. Wade, 269 Ky. 89, 106 S.W.2d 74 (Ky. 1937).
Each of the states within the Atlanta Region provides significant discretion to fiduciaries making decisions regarding investments. Although each state may have a slightly different definition of "prudent" man or person, only Georgia and Kentucky specifically delineate what investments are acceptable, Alabama and Mississippi allow great latitude in what investments are appropriate, and Florida, Georgia, North Carolina, South Carolina, and Tennessee allow for investment of every kind and in every kind of property.