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
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
(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
(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.