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
(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;
(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
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;
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
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.