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).