PR 07240.021 Louisiana
A. PR 01-225 Investment of Conserved Funds
DATE: August 3, 2001
In the Dallas Region, the States of Arkansas, Louisiana, New Mexico and Oklahoma have each adopted The Uniform Prudent Investor Act (UPIA) within their laws. While the State of Texas has not formally adopted the UPIA, it follows the “prudent investor” rules which are very similar to the UPIA.
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.
On the issue of whether parent payees are permitted to invest the funds belonging to their minor children differently than other types of payees, Oklahoma State law is silent and the States of Arkansas, New Mexico, and Texas make no special provisions. While Louisiana State law generally provides parents with usufruct (i.e., enjoyment of their children's property until the child's majority or emancipation), Social Security regulations require that the child's benefits be used only for the child's current maintenance or conserved or invested on the child's behalf. In each State it appears that parents must follow the same rules that apply to all other types of trustees.
You asked us, in response to the Agency's request, to research the laws of the States in Region VI as those laws affect a representative payee's responsibilities for the conservation and investment of benefit payments. The regulations provide that, after a representative has used benefit payments for the current maintenance of the beneficiary, any remaining amounts are to be conserved or invested on the beneficiary's behalf. See 20 C.F.R. § 404.2045. Any such "[c]onserved funds should be invested in accordance with the rules followed by trustees." Id. We look to state law to determine how trustees should invest funds. See POMS GN 00603.040A. Generally, states tend to follow a "prudent investor" rule.
You have asked that we examine the laws of the states in our region to determine:
(1) What investments are considered appropriate under the "prudent investor rule?"
(2) Does state law permit parent payees to invest funds belonging to their minor children differently than other types of payees? and
(3) What rules do trustees follow when investing funds?
Our specific responses for each State are set out below.
Which types of investments are considered appropriate under the “prudent man” rule?
The prudent investor rule is found at La. Rev. Stat. Ann. §§ 9:2090, 9:2127 (2000), as amended in 2001 La. Acts 520. Louisiana does not have a list of investments that are permissible under the prudent investor rule. See In re Butterworth Trust, 451 So.2d 1215, 1218 n.1 (La. App. 4 Cir. 1984). The trustee's duty is determined by the purposes of the trust and the circumstances of the beneficiaries, not in light of how a prudent man would manage his own property. 2001 La. Acts 520 (Comment (a) to amendments to La. Rev. Stat. Ann. § 9:2127). The trustee is generally required to diversify investments to reduce risk. Id. (Comment (c)). Small trusts can accomplish this diversification through pooled investments such as mutual funds. La. Rev. Stat. Ann. § 9:2087 (2000). Because Louisiana adopted the prudent investor rule from the Uniform Prudent Investor Act (1994) on June 21, 2001, no Court has further interpreted the rule.
Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?
Under Louisiana law, parents have a usufruct on their minor child's property. This usufruct provides that during the parent's marriage, they have enjoyment of their children's property until the child's majority or emancipation. La. Civ. Code Ann. art. 223 (2000). But this usufruct does not extend to an estate that is given to the child with the express condition that the parents not have such a usufruct. La. Civ. Code Ann. art. 226 (2000). Social Security regulations expressly provide that a child's Social Security benefits are to be used for the child's current maintenance, and the remaining amounts are to be conserved or invested on the child's behalf. 20 C.F.R. §§ 404.2045, 416.645. Therefore, it is our position that a parental usufruct does not extend to a child's Social Security benefits. Nevertheless, parents in Louisiana are also the administrators of their children's estates. La. Civ. Code Ann. art. 221 (2000). As administrators, the parents are accountable for the property and revenue of the estate that the law does not grant them a usufruct over. Id. Accordingly, it appears that parents are also subject to the prudent investor rule.
What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
A trustee has a duty to maintain clear and accurate accounts of the administration of the trust. At least once a year, the trustee must provide to a beneficiary an accurate account of his management of the trust for the preceding year. La. Rev. Stat. Ann. § 9:2088 (2000). A trustee must give a beneficiary upon request at reasonable times complete and accurate information as to the nature and amount of the trust property. La. Rev. Stat. Ann. § 9:2089 (2000).