PR 07240.040 Oklahoma
A. PR 01-225 Investment of Conserved Funds
DATE: August 3, 2001
In the Dallas Region, the States of Arkansas, Louisiana, New Mexico and Oklahoma have each adopted The Uniform Prudent Investor Act (UPIA) within their laws. While the State of Texas has not formally adopted the UPIA, it follows the “prudent investor” rules which are very similar to the UPIA.
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.
On the issue of whether parent payees are permitted to invest the funds belonging to their minor children differently than other types of payees, Oklahoma State law is silent and the States of Arkansas, New Mexico, and Texas make no special provisions. While Louisiana State law generally provides parents with usufruct (i.e., enjoyment of their children's property until the child's majority or emancipation), Social Security regulations require that the child's benefits be used only for the child's current maintenance or conserved or invested on the child's behalf. In each State it appears that parents must follow the same rules that apply to all other types of trustees.
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.
Which types of investments are considered appropriate under the “prudent man” rule?
The prudent investor rule is found at OK. STAT. ANN. Title 60, Ch. 4, § 175.61. The statute provides that a beneficiary may not successfully sue a trustee as long as the trustee acted in reasonable reliance upon the terms of the trust.
OK. STAT. ANN. Title 30, Art. IV, § 4-709 (A) limits the types of investments that a trustee or guardian can make from funds belonging to minors and incapacitated or partially incapacitated persons. Such funds only may be invested in one or more of the following:
Real estate and first mortgages on real property not exceeding 50% of actual value;
United States bonds or other Federally guaranteed securities or indebtedness;
Municipal corporation bonds;
Annuities covered by the Oklahoma Life and Health Insurance Guaranty Association, not to exceed $300,000 per beneficiary; or
Interest-bearing accounts up to the amount insured by the United States Government.
OK. STAT. ANN. Title 30, Art. IV, § 4-709 (C) provides that an individual guardian who either contracts with a bank or trust company under State or Federal supervision, or in fact is such a bank or trust company, may invest the ward's funds under the provisions of the Oklahoma Uniform Prudent Investor Act.
Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?
Oklahoma law is silent on this issue. However, the prudent investor rule appears to assume that prudent investors are impartial and have no conflict of interest. To the extent that a family relationship may affect such impartiality and may create a conflict of interest, one may need to scrutinize these funds more carefully.
What are the rules followed by trustees regarding the investment of funds with which they are entrusted?
Under OK STAT. ANN. Title 60, Ch. 4, § 175.62, trustees must provide reasonable care, skill and caution. Investment decisions must be evaluated in the context of the trust portfolio as a whole. Trustees must consider such factors as general economic conditions; possible effects of inflation or deflation; tax consequences; the impact upon the entire trust portfolio; the expected total return; the beneficiary's other resources; the beneficiary's needs; and an asset's special relationship or value to the beneficiary or to the trust. In addition, trustees must make a reasonable effort to verify facts relevant to the trust assets. If they have special skills, or have become trustees because they purported to have such skills, they must use those skills.