You asked us to provide an opinion examining the law of each state and district within
our region with respect to the following three questions:
Which types of investments are considered appropriate under the "prudent man" rule?
What are the rules governing trustees regarding the investment of funds with which
they are entrusted?
Under state law, are parent payees permitted to invest the finds belonging to their
minor children differently than other types of payees?
INVESTMENTS UNDER THE "PRUDENT MAN" RULE
The Programs Operations Manual System (POMS) provides that representative payees must
invest benefits "in accordance with the rules applying to the investments of trust
estates by trustees." POMS GN 00603.040(A). If a state applies a "prudent man" rule to investments by fiduciaries, representative
payees must invest benefits in a manner that complies with this rule. POMS GN 00603.040(B). Accordingly, we looked at state law in each of our five states and our one district
in order to determine what investments are appropriate under the "prudent man" law
as applied in that state or district.
Virginia has adopted the Uniform Prudent Investor Act, which requires a trustee to
invest trust assets "as a prudent investor would by considering the purposes, terms,
distribution requirements, and other circumstances of the trust". Va. Code Ann. §
26-45.4 (Michie 1999). The prudent investor rule may be expanded, restricted, eliminated,
or otherwise altered by the provisions of the trust. Va. Code Ann. § 26-45.3 (Michie
1999). In order to satisfy the "prudent investor" rule, the trustee must "exercise
reasonable care, skill, and caution." Id. The trustee should consider the following circumstances in investing trust assets:
(1) General economic conditions;
(2) The possible effect of inflation or deflation;
(3) The expected tax consequences of investment decisions or strategies;
(4) The role that each investment or course of action plays within the overall trust
portfolio, which may include financial assets, interests in closely held enterprises,
tangible and intangible personal property, and real property;
(5) The expected total return from income and the appreciation of capital;
(7) Needs for liquidity, regularity of income and preservation or appreciation of
(8) An asset's special relationship or special value, if any, to the purposes of the
trust or to one or more of the beneficiaries.
Va. Code Ann. § 26-45.4(C) (Michie 1999).
Pursuant to Virginia law, a trustee may invest in "any kind of property or type of
investment consistent with the standards" of the Uniform Prudent Investor Act. Va.
Code Ann. § 26-45.4(E) (Michie 1999). The following investments will be conclusively
presumed to be prudent when made by any "fiduciary," including a trustee:
1) Obligations of the Commonwealth, its agencies and political subdivisions, subject
to specific requirements;
(2) Obligations of the United States, subject to specific requirements; and
(3) Savings accounts, time deposits or certificates of deposit, subject to specific
Va. Code Ann. § 26-40.01(B) (Michie 1999). _1/
RULES GOVERNING TRUSTEES REGARDING INVESTMENT
Conserved funds must be invested in accordance with the "rules followed by trustees."
20 C.F.R. § 2045(a) (2000). These rules are determined by reference to state law.
POMS GN 00603.040. Accordingly, we looked at the rules followed by trustees in each state and district
within our region to determine what rules representative payees should follow in investing
Trustees in Virginia must follow the same rules previously described for trustees
in the District of Columbia. Va. Code Ann. §§ 26-45.4(D), (F); 26-45.5; 26-45.7; 26-45.8;
26-45.10 (Michie 1999).
PARENTS AS PAYEES
In Virginia, a child's mother and father are "natural guardians" of the child. Va.
Code Ann. § 31-1 (Michie 1999). Guardians are bound by the same investment rules as
trustees. Va. Code Ann. § 8.01-2 (Michie 1999). Accordingly, a parent payee in Virginia
is bound by the same rules previously described as applying to trustees in Virginia.
_1/ Additional investments are "conclusively presumed to have been prudent" when made
in accordance with investments by the Virginia Resources Authority or pursuant to
the Virginia Housing Development Authority Act. Va. Code Ann. §§ 26-40, 36-55.44,
62.1-221 (Michie 1999). This extensive list of investments set forth in Va. Code Ann.
§ 26-40 (Michie 1999) does not apply to investments by trustees, but may provide guidance
in assessing whether investments not listed in Va. Code Ann. § 26-40.1(B) (Michie
1999) were prudent.