PR 07240.054 West Virginia
A. PR 01-225 Investment of Conserved Funds
DATE: August 3, 2001
The District of Columbia and the States of Virginia and West Virginia have adopted The Uniform Prudent Investor Act (UPIA) within their laws. The States of Delaware, Maryland and Pennsylvania follow “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.
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.
In Pennsylvania and Virginia, a parent is the guardian of his or her child and, therefore, is bound by the same investment rules as trustees. The statutes and case laws in Delaware, the District of Columbia, Maryland, and West Virginia do not address what standard a “non-guardian” parent must follow when investing the property of his or her minor children.
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.
Like the District of Columbia, Pennsylvania, and Virginia, West Virginia has adopted the Uniform Prudent Investor Act. W. Va. Code § 44-6C-1 et seq. (1996). The "prudent investor" rule may be eliminated, expanded, restricted, or otherwise altered by the provisions of the underlying trust. W. Va. Code § 44-6C-1(b) (1996). The "prudent investor" rule 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." W. Va. Code § 44-6C-2(a) (1996). 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;
(6) Other resources of the beneficiaries;
(7) Needs for liquidity, regularity of income and preservation or appreciation of capital; and
(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.
W. Va. Code § 44-6C-2(c) (1996).
West Virginia law specifically explains that a trustee "may invest in any kind of property or type of investment consistent with the standards" of the Uniform Prudent Investor Act. W. Va. Code § 44-6C-2(e) (1996). W. Va. Code § 44-6-2 (1996) provides further details as to what kinds of investments a trustee may make without liability for loss. A trustee may invest trust assets without liability for any loss resulting from the following investments if he "exercise[s] the judgment and care under the circumstances then prevailing which men of prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital":
(a) Specific bonds or interest-bearing notes or obligations of the United States;
(b) Bonds or interest-bearing notes or obligations of the state of West Virginia;
(c) Bonds of any state of the United States which has not within 10 years defaulted in the payment of any part of either principal or interest of any of its bonds;
(d) Bonds or interest-bearing notes or obligations of any county, district, municipality or other political division of the state issued since May 1917;
(e) Certain bonds and negotiable notes secured by first mortgage or first trust deed upon improved real estate;
(f) Savings accounts and time deposits of bank or trust companies to the extent that such deposits are insured by the federal deposit insurance corporation , or by any other similar federal instrumentality, subject to certain interest rate limitations;
(g) Shares of state building and loan associations, or federal savings and loan associations, to the extent such shares are insured by the federal savings and loan insurance corporation, or by any other similar federal instrumentality, subject to certain dividend limitations; and
(h) Other securities of corporations organized and existing under the laws of the United States, or by the District of Columbia or any state of the United States, including, but not by way of limitation, bonds, debentures, notes, common and preferred stocks of such corporations and securities of any open end or closed management type investment company or investment trust registered pursuant to the Federal Investment Company Act of 1940 "which men of prudence, discretion and intelligence acquire or retain for their own account," subject to certain limitations.
W. Va. Code § 44-6-2 (1996).
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 conserved funds.
Trustees in West Virginia must follow the same rules previously described for trustees in the District of Columbia. W. Va. Code §§ 44-6C-2(d), (f); 44-6C-3; 44-6C-5; 44-6C-7; 44-6C-9 (1996).
PARENTS AS PAYEES
In West Virginia, a "guardian" is bound by the same rules as a trustee in investing trust assets. W. Va. Code § 44-6-2 (1999). A "guardian" is an individual who is appointed by the court to manage either the person or property of the minor child. W. Va. Code § 44-10-3 (1999). A parent may be appointed guardian of his or her minor child. Id. Accordingly, a parent who has been appointed guardian of the estate or person of his or her minor child would be bound by the same rules regarding investment as previously described.
West Virginia statutes and case law do not address what standard a non-guardian parent must follow in investing the property of his or her minor children.