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 Massachusetts Uniform Prudent
Investor Act. Annotated Laws of Massachusetts, General Law C. 203C § 1.
No specific types of investments are required or restricted. No specific investment
or course of action is, taken alone, prudent or imprudent. The trustee shall reasonably
diversify the investments of the trust unless it is prudent not to do so under the
circumstances. 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?
Massachusetts law is silent on this issue. The assumption, however, is 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 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 should diversify
investments unless it is in the best interest of the beneficiary not to diversify.
They should have a strategy and consider the fund as a whole. They must use reasonableness,
prudence, and diligence. They must be impartial with no conflict of interest. They
may delegate their investment decisions, as long as they do it with care. If they
have special skills, they are required to use those skills.
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.