You asked us to research a representative payee's responsibilities for the conservation
and investment of benefit payments. You asked that we consider this issue with respect
to the laws of the six states in Region I. The specific questions presented by you
concern which types of investments are considered appropriate for a trustee under
the "prudent man" rule; whether parental-payees are permitted to invest differently
than other types of payees; and what rules trustees must follow in making investments
with funds that are held in trust. We herein provide answers to these questions with
respect to each New England state.
Which types of investments are considered appropriate under the “prudent man” rule?
The Uniform Prudent Investor Act has been adopted as the Maine Uniform Prudent Investor
Act. 18-A Maine Revised Statutes § 7-302.
No specific types of investments are required or restricted. No specific investment
or course of action, taken alone, is viewed as prudent or imprudent. Investment and
management decisions with respect to individual assets shall be evaluated not in isolation
but in the context of the trust portfolio as a whole and as part of the overall investment
strategy. The trustee may invest in every kind of property and type of investment,
subject to the prudent investor rule.
Under State law, are parent payees permitted to invest the funds belonging to their
minor children differently than other types of payees?
Maine law is silent on this issue. There is an assumption that the prudent investor
be impartial and with no conflict of interest. To the extent that a family relationship
may be a barrier to such impartiality and may create a conflict of interest, one may
need to scrutinize these funds more carefully. There does not appear, however, to
be any separate standard for parents acting as trustees for their children.
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
Trustees have a duty to provide reasonable care, skill and caution. They must be impartial
with no conflict of interest. Compliance with the Prudent Investor Rule, as in all
jurisdictions where it applies, is determined in light of the facts and circumstances
that existed at the time of the investment (and at the time of any decision to remain
in the investment) and not by hindsight driven by the ultimate outcome of the investment.
A trustee is required only to conduct himself faithfully and to exercise sound discretion
considering probable income and safety. Hines v. Ayotte , 189 A. 835 (1937).
All six of our states have incorporated the Prudent Investor Act within their laws.
We believe that a fair reading of the laws in each of these states would require that
a representative payee use reasonable care, skill, and caution with the interest of
the beneficiary as the key element. We believe that the facts and circumstances of
each case determine whether the representative payee has acted with the required care,
skill and caution and that the test is a test of conduct and not of results. We would
note that the Uniform Prudent Investor Act generally specifies that this rule may
be "expanded, restricted, eliminated, or otherwise altered by the provisions of the
trust." Thus, if SSA were to decide to restrict the types of investments that representative
payees were to make with Social Security or Supplemental Security Income funds, the
payee would be bound by those limitations and could not make other investments based
on reliance upon the Uniform Prudent Investor Act. In addition, the Uniform Prudent
Investor Act generally permits a trustee to delegate investment and management functions,
and SSA might wish to consider placing some limitations or restriction on this right.