You asked us to research, for the eight states in the Atlanta Region, the laws concerning
a representative payee's responsibilities for conserving and investing benefit payments.
The specific questions concern the types of investments considered appropriate; whether
parent-payees are permitted to invest differently than other types of payees; and
what rules are followed by trustees. Our responses to the questions, by state, are
as follows:
NORTH CAROLINA
What types of investments are considered appropriate under the "prudent man" rule?
North Carolina General Statutes provide that in acquiring, investing, retaining, selling
and managing property for the benefit of another a fiduciary shall observe the standard
of judgment and care which an ordinary prudent person of discretion and intelligence
would observe. Within this standard, a fiduciary is authorized to acquire and retain
every kind of property and every kind of investment, including but not limited to:
Bonds, debentures, and other corporate or governmental obligations; stocks, preferred
or common; real estate mortgages; shares in building and loan associations or savings
and loan associations; annual premium or single premium life, endowment, or annuity
contracts; and securities of any management type investment company or investment
trust registered under the Federal Investment Company Act of 1940, as from time to
time amended.
N.C. Gen. Stat. § 36A-2 (2000)
Under state law, are parent-payees permitted to invest the funds belonging to their
minor children differently than other types of payees?
We found no special provisions for parents of minor children.
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
A trustee owes a duty to the beneficiaries of the trust to invest and manage trust
assets as a prudent investor would, considering the purposes, terms, distribution
requirements, and other circumstances of the trust. See N.C. Gen. Stat. § 36A-161 (2000). The code further provides that "[a] trustee may invest in any
kind of property or type of investment consistent with the standards of this Article."
N.C. Gen. Stat. § 36A-162(e) (2000). The Official Comment accompanying this section clarifies that
no particular kind of property or type of investment is inherently imprudent, and
that while some states' legislation created so-called "legal lists" of approved trust
investments, "[t]he universe of investment products changes incessantly." Section
36A-162(e), in accordance with the Restatement of Trusts 3d: Prudent Investor Rule,
abrogates categoric restrictions based on the premise that trust beneficiaries are
better protected by emphasis on close attention to risk/return objectives than by
attempts to identify categories of investment that are per se prudent or imprudent.
This is a relatively new statute and there are no reported cases interpreting it.
The comments to the statute note that Congress has imposed a comparable prudence standard
for the administration of pension and employee benefit trusts in the Employee Retirement
Income Security Act (ERISA), enacted in 1974. Section 404(a)(1)(B) of ERISA provides
that:
a fiduciary shall discharge his duties with respect to a plan solely in the interest
of the participants and beneficiaries and . . . with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an enterprise
of like character and with like aims . . . .
29 U.S.C. § 1104(a)(1)(B).
The "prudent man" standard is not, however, new to North Carolina. Older cases describe
the prudent man standard as allowing the "custodian, without regard to statutes restricting
investments by fiduciaries, to invest and reinvest the custodial property as would
a prudent man of discretion and intelligence seeking a reasonable income and preservation
of capital. He may retain any security given." Korschun v. Clayton, 185 S.E. 2d 417 (N.C. 1971). Additionally, "Good faith and the use of ordinary care
and reasonable diligence are all that can be required of executors and administrators
. . . . They are not insurers." Thigpen v. Farmers Banking & Trust Co. of Tarboro , 165 S.E. 720, 721 (N.C. 1932). And, finally, a "guardian is generally authorized
to make any investment of funds in his hands . . . which , in his best judgment, arrived
at in good faith and after exercise of due diligence, will secure the principal of
said funds, and yield a reasonable income . . . . All that can be and all that should
be required of him in making any investment is that he shall conduct himself faithfully,
and shall, at the time, exercise sound discretion." Sheets v. J.G. Flynt Tobacco Co., 141 S.E. 355, 357 (N.C. 1928).
CONCLUSION
Each of the states within the Atlanta Region provides significant discretion to fiduciaries
making decisions regarding investments. Although each state may have a slightly different
definition of "prudent" man or person, only Georgia and Kentucky specifically delineate
what investments are acceptable, Alabama and Mississippi allow great latitude in what
investments are appropriate, and Florida, Georgia, North Carolina, South Carolina,
and Tennessee allow for investment of every kind and in every kind of property.