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.
What types of investments are considered appropriate under the “prudent man” rule?
Generally, no specific types of investments are considered appropriate or inappropriate.
Trustees should make decisions in accord with the guidance of the Uniform Prudent
Investor Act. One investment identified as appropriate is that banks or trust companies
that act as fiduciaries may invest in the securities of management companies or investment
trusts registered under the Federal Investment Company Act of 1940. NM STAT. ANN.
1978 § 46-2A-1 (Michie 1995).
Are parent payees permitted to invest the funds belonging to their minor children
differently than other types of payees?
No special provisions apply to investments by parent payees of minor children.
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
New Mexico has adopted the Uniform Prudent Investor Act. NM STAT. ANN. 1978 §§ 45-7-601
to 45-7-0612 (Michie 1995). The Act expressly disavows restrictions against “speculative” or “risky” investments, noting the changing environment and the differences in trust purposes.
Uniform Prudent Investor Act § 2 (1994). Trustees should invest and manage trust assets
as a prudent investor would, by considering the purposes, terms, distribution requirements
and other circumstances of the trust, and exercising reasonable care, skill, and caution.
NM STAT. ANN. 1978 § 45-7-603A (Michie 1995). Investment decisions are evaluated in
the context of the trust portfolio as a whole and as part of an overall investment
strategy with risk and return objectives that are reasonably suited to the trust.
NM STAT. ANN. 1978 § 45-7-603B (Michie 1995). Relevant circumstances for the trustee
to consider include general economic conditions, inflation or deflation possibilities,
tax consequences, the role of investments within the overall portfolio, expected income
and capital appreciation, needs for liquidity, income, or growth, etc. NM STAT. ANN.
1978 § 45-7-603C (Michie 1995). Trustees must make a reasonable effort to verify relevant
facts. NM STAT. ANN. 1978 § 45-7-603D (Michie 1995). Within the broad guidelines,
trustees may invest in any type of investment or property that is consistent with
the standards of the Act. NM STAT. ANN. 1978 § 45-7-603E (Michie 1995). Trustees having,
or representing themselves to have, special skills or expertise have a duty to use
those skills or that expertise. NM STAT. ANN. 1978 § 45-7-603 F (Michie 1995).
Trustees must diversify investments unless the purposes of the trust are better served
without doing so. NM STAT. ANN. § 45-7-604 (Michie 1995). New Mexico has adopted the
Uniform Common Trust Funds Act, which facilitates diversification for multiple trusts
operated by the same trustee (generally a bank or trust company rather than an individual
trustee). NM STAT. ANN. 1978 §§ 46-1-13 to 46-1-16 (Michie 1995).
Trustees may delegate investment and management functions that a prudent trustee with
comparable skills could properly delegate under the circumstances, without liability
for the actions of the agent to whom the functions are delegated. The trustee must
exercise reasonable care, skill, and caution in selecting the agent, establishing
the scope and terms of the delegation, and monitoring the agent's performance. NM
STAT. ANN. § 45-7-610 (Michie 1995).