PR 07240.055 Wisconsin

A. PR 01-225 Investment of Conserved Funds

DATE: August 2, 2001

1. SYLLABUS

Five of the six States in the Chicago Region, with Wisconsin as the exception, have adopted The Uniform Prudent Investor Act (UPIA) within their laws.

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. Although Wisconsin has not adopted the UPIA, much of its law parallels the Act.

In each State, 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.

State law in Illinois is silent and the other five States in the region do not directly address the issue of whether parent payees are permitted to invest funds belonging to their minor children differently than other types of payees. However, the standards stated above appear to be the same for parents and for other types of trustees.

2. OPINION

You asked us to research the laws of the six states in Region V as those laws impact a representative payee's responsibilities for the conservation and investment of benefit payments. The regulations provide that, after a representative has used benefit payments for the current maintenance of the beneficiary, any remaining amounts are to be conserved or invested on the beneficiary's behalf. See 20 C.F.R. § 404.2045. Any such "[c]onserved funds should be invested in accordance with the rules followed by trustees." Id. We look to state law to determine how trustees should invest funds. See POMS GN 00603.040A. Generally, states tend to follow a "prudent investor" rule.

You have asked that we examine the laws of the states in our region to determine:

(1) What investments are considered appropriate under the "prudent investor rule?"

(2) Does state law permit parent payees to invest funds belonging to their minor children differently than other types of payees? and

(3) What rules do trustees follow when investing funds?

The laws of the states within our region require trustees to use reasonable care, skill and caution with the interest of the beneficiary as the key element. Our specific state answers are set out below.

Wisconsin

What investments are considered appropriate under the “prudent investor” rule?

Although Wisconsin has not adopted the Uniform Prudent Investor Act, much of its law parallels the Act. Wisconsin's prudent person rule is found at Wisconsin Statutes Annotated (W.S.A.) 881.01.

A Wisconsin court will not interfere with a trustee's investments, provided the trustee acts in good faith and from proper motives and within the bounds of reasonable judgment. The court may interfere only when a trustee acts outside bounds of reasonable judgment, a trustee is guilty of an abuse of discretion, or a trustee acts dishonestly and improperly. In re Filzen's Estate , 31 N.W.2d 520, 522 (Wis. 1948). For example, a trustee was found not liable for the losses due to the stock market crash in the 1930's. Welch v. Welch, 290 N.W. 758 (Wis. 1940).

At W.S.A. 881.01(1), Wisconsin provides that an investor may invest in certain types of listed investments, although the list is not all-inclusive:

Bonds, debentures and other corporate obligations

Stocks (up to 50% of the total fund)

Shares of investment companies and investment trusts

Wisconsin case law also notes the following reasonable investments:

United States savings bonds: Kugler v. Van Rossum Estate, 330 N.W. 2d 622, 624, fn. 1 (Wis. Ct. App. 1983); see also In re Wehner's Will v. First Wisconsin Trust Co., 300 N.W. 241 (Wis. 1941).

Certificates of deposit: Kugler, 330 N.W. 2d at 624, fn. 1.

Savings accounts: Id.

Under State law, are parent payees permitted to invest the funds belonging to their minor children differently than other types of payees?

Wisconsin law does not directly address this issue. However, Wisconsin law provides that a custodian with special skills or expertise must use the skills or expertise. W.S.A. 800.665. This suggests a heightened duty for certain types of investors, such as investment bankers. A parent who does not have such special skills or expertise would not be subject to this heightened duty. However, there is an assumption that the prudent investor be impartial and with no conflict of interest. If the parent's investment suggests a conflict of interest, based on the family relationship, the investment should be investigated.

What are the rules followed by trustees regarding the investment of funds with which they are entrusted?

The first duty of a trustee is to preserve the corpus of the trust. First Wisconsin Trust Co. v. Perkins 82 N.W.2d 331, 470 (Wis. 1957). Yet, a trustee should do more than simply preserve the funds; he or she should invest the funds and not simply allow the funds to lie idle. Matter of Kugler's Estate , 330 N.W. 2d 622, 626 (Wis. Ct. App. 1983). There is an assumption that the funds to be invested are those that are not needed immediately to maintain the beneficiary—generally six month's needs. In re Guardianship of Kueschel, 19 N.W. 2d 178, 180 (Wis. 1945).

Funds should be diversified. In re Mueller's Trust, 135 N.W. 2d 854, 864 (Wis. 1965). A trustee must be impartial with no conflict of interest. W.S.A. 800.665 (4); W.S.A. 880.84 (4). The prudent person test concerning investments is similar to the reasonable person test for negligence, and presents a mixed question of fact and law. Matter of Estate of Ames, 448 N.W.2d 250, 255 (Wis. Ct. App. 1989).

CONCLUSION

Five of our six states, with Wisconsin as an exception, have incorporated the Prudent Investor Act within their laws. Wisconsin has incorporated most of the theory behind the Prudent Investor Act. Ohio is the only state that sets out guidelines by individual types of investments that are considered prudent as a matter of law. In other states, there is some guidance in the case law, other parts of the state statutes, (in Michigan) in repealed statutes.

In each state, a representative payee must use reasonable care, skill and caution with the interest of the beneficiary as the key element.


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PR 07240.055 - Wisconsin - 02/10/2009
Batch run: 02/11/2009
Rev:02/10/2009