PR 07240.045 South Carolina
A. PR 01-225 Investment of Conserved Funds
Date: August 13, 2001
All eight States in the Atlanta Region follow slightly different interpretations of the “prudent” person (investor) rule. Each State provides some degree of discretion to fiduciaries, including representative payees, when making decisions regarding investments. Only Georgia and Kentucky specify what investments are acceptable. Alabama and Mississippi allow greater latitude regarding what investments are appropriate. The States of Florida, North Carolina, South Carolina, and Tennessee allow for every kind of investment.
In all States, no special provisions were found for parents to follow when investing funds belonging to their minor children. All fiduciaries, including the parents of minor children, are required to follow the same general rules.
Trustees are required to 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.
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:
What types of investments are considered appropriate under the "prudent man" rule?
South Carolina Code provides that, except as otherwise provided by will, agreement, court order, or other instrument creating or defining the fiduciary's powers, a fiduciary shall exercise the judgment and care a prudent person would use to attain the purposes of the fiduciary account. In making investment decisions, a fiduciary may consider the general economic conditions, the anticipated tax consequences of the investment, the anticipated duration of the fiduciary account, the needs and objectives of its beneficiaries, and other prevailing circumstances. S.C. Code Ann. § 62-7-302(a) (1994). Within the limitations of the foregoing standard, a fiduciary authorized to:
(1) acquire and retain every kind of property and every kind of investment, specifically including, but not by way of limitation, bonds, debentures, and other corporate obligations, and stocks, preferred or common, and securities of any open-end or closed-end management-type investment company or investment trust registered under the Federal Investment Company Act of 1940, as amended;
(2) retain property properly acquired, without limitation as to time and without regard to its suitability for original purchase;
(3) retain the property received by such fiduciary on the creation of the estate, guardianship, trust, or other fiduciary account (including, in the case of a corporate fiduciary, stock or other securities of its own issue or of its parent corporation's issue) without regard to its suitability for original purchase;
(4) retain the securities into which corporate securities owned by the fiduciary may be converted or which may be derived therefrom as a result of merger, consolidation, stock dividends, splits, liquidations, and similar procedures (and may exercise by purchase or otherwise any rights, warrants, or conversion features attaching to any such securities);
(5) purchase or otherwise acquire and retain any security underwritten by a syndicate, even if the fiduciary or its affiliate (defined as any entity which owns or is owned by, in whole or in part, the fiduciary or is owned by the same entity that owns the fiduciary) participates or has participated as a member of the syndicate, provided the fiduciary does not purchase the security from itself, its affiliate, or from another member of the underwriting syndicate or its affiliate pursuant to an implied or express reciprocal agreement between the fiduciary or its affiliate, and such other member or its affiliate, to purchase all or part of each other's underwriting participation commitment within the syndicate. The propriety of an investment decision is to be determined by what the fiduciary knew or should have known at the time of the decision about the inherent nature and expected performance of the investment, the attributes of the portfolio, the general economic conditions, the anticipated tax consequences of the investment, the anticipated duration of the fiduciary account, the needs and objectives of the beneficiaries of the account, and other pertinent circumstances as they existed at the time of the decision. Any determination of liability for investment performance shall consider not only the performance of a particular investment but also the performance of the portfolio as a whole. Any fiduciary acting under a governing instrument shall not be liable to anyone whose interests arise from that instrument for the fiduciary's good faith reliance on the express provisions of such instrument. The standards set forth in this section may be expanded, restricted, or eliminated by express provisions in a governing instrument; and
(6) invest and reinvest in the securities of an open-end or closed-end management investment company or of an investment trust registered under the Investment Company Act of 1940, as amended. A bank or trust company may invest in these securities even if the bank or trust company, or an affiliate of the bank or trust company, provides services to the investment company or investment trust such as that of an investment advisor, custodian, transfer agent, registrar, sponsor, distributor, manager, or otherwise, and receives reasonable remuneration for those services.
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?
The general rule in South Carolina regarding accountability of trustees is that they shall use such diligence in the management of the trust fund as a prudent man would use in relation to his own affairs, and that they shall not be charged with loss except for neglect of that duty. See Epworth Orphanage v. Long, 207 S.C. 384, 36 S.E. 2d 37, 42 (1945), citing Turnipseed v. Sirrine, 60 S.C. 272, 38 S.E. 423, 428 (1901). A trustee is not an insurer, but is responsible for losses occurring if facts that are known to him, or might have been known to him by the exercise of ordinary prudence and diligence, reveal the investment was not sound. See Epworth, 36 S.E. 2d at 42.
Where the instrument creating the trust directs in what kind of property the trust funds shall be invested, the trustee shall be liable for departing from that direction; however, where there is no such direction, and the trustee acts with prudence and honesty in making investments, he will not be liable if a loss ensues. See Sanders v. Rogers, 1870 WL 3491 (S.C. 1870). A trustee shall not make a profit out of the trust. See Andrews v. U.S. Fidelity and Guaranty Co., 154 S.C. 456, 151 S.E. 745, 748 (1930).
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.