PR 07240.029 Montana
A. PR 01-225 Investment of Conserved Funds
Date: August 14, 2001
Two of the six States (Colorado and Wyoming) in the Denver Region have adopted The Uniform Prudent Investor Act (UPIA) within their laws. The other four States (Montana, North Dakota, South Dakota, and Utah) have incorporated most of the theory behind the UPIA in their State law.
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.
Each State's laws are silent on the issue of whether parent payees are permitted to invest funds belonging to their minor children differently than other types of payees. However, the standards stated above appear to be the same for parents and for other types of trustees.
You asked us to research the laws of the six states in Region VIII as those laws concern 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.
You have asked that we examine the laws of the states in our region to determine:
(1) What are the rules followed by trustees regarding the investment of funds with which they are entrusted;
(2) What investments are considered appropriate under the "prudent man" rule; and
(3) Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees? 1_/
Our answers for each state in Region VIII are set out below.
1. What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
Montana applies the prudent investor rule, which provides that “[a] trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.” Mont. Code Ann. § 72-34-114(2). Trustees should have a strategy and consider the fund as a whole. They have a duty to avoid conflicts of interest. They may delegate investment decisions that a prudent trustee of comparable skills could properly delegate under the circumstances. If they have special skills, they are required to use those skills. Id. §§ 72-34-103-115.
2. Which types of investments are considered appropriate under the “prudent man” rule?
No specific types of investments are required or restricted. No specific investment or course of action is, taken alone, prudent or imprudent. The trustee may invest in any kind of property and type of investment consistent with the prudent investor rule. Id. § 72-34-114(6).
3. Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?
Montana law is silent on this issue. However, there is an assumption that the prudent investor be impartial and have 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. The standard, however, appears to be identical.
Two of our six states, Colorado and Wyoming, have incorporated the Uniform Prudent Investor Act within their laws. The other four states have incorporated most of the theory behind the Uniform Prudent Investor Act. 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.
1_/ We have reordered the questions presented in your May 24, 2001, memorandum.