You asked us to research a representative payee's responsibilities for the conservation
and investment of benefit payments. You asked that we consider this issue with respect
to the laws of the six states in Region I. The specific questions presented by you
concern which types of investments are considered appropriate for a trustee under
the "prudent man" rule; whether parental-payees are permitted to invest differently
than other types of payees; and what rules trustees must follow in making investments
with funds that are held in trust. We herein provide answers to these questions with
respect to each New England state.
VERMONT
Which types of investments are considered appropriate under the “prudent man” rule?
Vermont added the Uniform Prudent Investor Act to its statutes in 1997. 9 Vermont
Statutes Annotated §§ 4651-4662.
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 every kind of property and type of investment, subject to the prudent investor
rule.
Under State law, are parent payees permitted to invest the funds belonging to their
minor children differently than other types of payees?
Vermont law is silent on this issue. It appears that the same standard is to be applied
to trustees for minor children as to trustees for others. There is, however, an assumption
in all cases that the prudent investor be impartial and with 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.
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
The trustee owes a duty to provide prudence, discretion, and intelligence in management
of the trust. The trustee should diversify the funds in trust but may refrain from
doing so if the circumstances dictate. In formulating an investment strategy, the
trustee must consider the purpose, terms, distribution requirements and other circumstances
of the trust. 9 Vermont Statutes Annotated § 4652. The trustee must use reasonableness,
prudence, and diligence and be impartial in investments and without conflict of interest.
CONCLUSION
All six of our states have incorporated the Prudent Investor Act within their laws.
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. We would
note that the Uniform Prudent Investor Act generally specifies that this rule may
be "expanded, restricted, eliminated, or otherwise altered by the provisions of the
trust." Thus, if SSA were to decide to restrict the types of investments that representative
payees were to make with Social Security or Supplemental Security Income funds, the
payee would be bound by those limitations and could not make other investments based
on reliance upon the Uniform Prudent Investor Act. In addition, the Uniform Prudent
Investor Act generally permits a trustee to delegate investment and management functions,
and SSA might wish to consider placing some limitations or restriction on this right.