Reprise: The Prudent Investor in Probate

April 30, 2018 § Leave a comment

Reprise replays posts from the past that you might find useful today.

Limitations on Guardianship Investments

April 7, 2014 § 3 Comments

Prudent investment and management of a ward’s assets is a fundamental duty of a guardian or conservator.

The task is complicated by the language of MCA 93-13-17, which states:

Every guardian, before he shall have authority to act, shall, unless security be dispensed with by will or writing or as hereinafter provided, enter into bond payable to the state, in such penalty and with such sureties as the court may require; . . . .

A guardian need not enter into bond, however, as to such part of the assets of the ward’s estate as may, pursuant to an order of the court in its discretion, be deposited in any one or more banking corporations, building and loan associations or savings and loan associations in this state so long as such deposits are fully insured, such deposits there to remain until the further order of the court, and a certified copy of the order for deposit having been furnished the depository or depositories and its receipt acknowledged.

MCA 91-13-1, et seq. set out the rules for fiduciary investments, including the types of investment instruments permitted and the manner of holding and trading such investments. No matter what the investment instrument, however, bond is required by 93-13-17, unless the money is deposited into a “fully insured” account at either (a) a banking corporation located in Mississippi; or (b) a building and loan association located in Mississippi; or (c) a savings and loan association located in Mississippi; AND the institution signs acknowledgment of receipt of the court order that no funds will be expended without court authorization.

That thicket of requirements is what Natalie Deason encountered when she tried to get chancery court authorization to invest the substantial settlement proceeds that her son, Blaine, received as a result of his father’s death in the Deepwater Horizon oil rig explosion. Natalie was appointed guardian, and she proposed to remove the guardianship to Louisiana, where she had moved, and to make certain investments of the funds without bond. The chancellor appointed a guardian ad litem for Blaine.

Following a hearing, the chancellor rejected both the request to take the guardianship out of Mississippi and the investment plan, and Natalie appealed.

On appeal, the MSSC affirmed March 27, 2014, in Guardianship of Roshto: Deason v. Stinson. You can read the court’s ruling on the removal issue for yourself, as well as Justice King’s cogent dissent. As for the investment issue, Justice Coleman wrote for the majority:

¶17. The chancellor determined that, because Natalie’s proposed investment plan would not limit the funds to being placed in FDIC insured accounts from which funds could not be withdrawn without a court order, Mississippi Code Section 93-13-17 required the guardian post a bond in the full amount of the guardianship funds. The chancellor noted, and the parties had conceded, that “such a bond would be extremely difficult to find and that the annual premium would be exorbitant.” Regarding the use of a structured settlement, the chancellor expressed concern that “the minimal savings on income taxes would be offset by the cost of the bond and by the loss of potential increased earnings when the interest rates rise.” As to the proposal to put half of the money into a trust account, the chancellor held that “[a]llowing the funds to be placed outside the control of the [c]ourt, without bond, would be an abuse of the authority of the [c]ourt and neglectful of the duty to the minor.” The chancellor ordered Natalie to deposit the funds in an FDIC insured bank account in the state of Mississippi and to “avail herself of the benefits of investing through the CDARS plan to maximize protection of Blaine’s assets and minimize her record keeping.”

¶18. Natalie asserts that the trial court erred in requiring that the entirety of Blaine’s settlement funds be placed into CDs. She argues that doing so violates both the reasonably prudent investor standard that governs fiduciaries [Fn 4 See MCA 91-13-3] and the duty of a guardian to improve award’s estate. [Fn 5 See MCA 93-13-38]. She claims that interest rates and other considerations related to investment in CDs effectively garner a negative return on the investment. She also argues that bond requirements for the investments should be waived because, if they are not, “[Section] 93-13-17 effectively prohibits a guardian from investing in any investment other than a fully insured bank account when a ward’s assets are substantial – because either the guardian could not obtain a bond, or could not afford one.” She asserts that such a requirement conflicts with the prudent investment statute.

¶19. The plain language of the guardianship statutes unequivocally requires a bond to be posted if the ward’s estate is placed in non-insured investments … While we understand the desire to diversify Blaine’s money and the difficulties surrounding obtaining such a large bond, the plain language of the statute simply tied the chancellor’s hands. The testimony was that, for such a large amount, CDARS was the only practical manner in which the statute could be complied with – the only way that the funds could be deemed placed in Mississippi institutions and be fully insured such that the guardian’s bond could be waived. Under Section 93-13-17, the chancellor had no option but to place the investment in a fully insured program such as CDARS, or to require that Natalie post a bond. Thus, the chancellor did not err in requiring that the entire settlement be put into CDARS.

¶20. The chancellor heard extensive testimony on all the investment options, asked questions regarding the proposed investment strategies, requested additional research on various investment strategies, and issued a lengthy and detailed judgment explaining her decision on the investment of the ward’s settlement. In her order, the chancellor noted the guardian ad litem’s “serious reservations” about the proposed investment of Blaine’s funds, such as “the fluctuating stability of the economy, the recent failures of large investment companies . . . , the historically low interest rates [that] would affect the return on investment rate of any structured annuity, and the requirement that the guardianship assets be bonded for moneys not held in FDIC insured accounts.” The chancellor cited the court’s “duty to wards under its protection to ensure the proper management of the ward’s estate,” and it was evident throughout the proceedings that her primary concern was Blaine’s best interest. The record is clear that the chancellor very carefully considered all the options and made lengthy, detailed, and thorough findings of fact and conclusions of law. Even had the statute not tied the chancellor ’s hands, we would not find an abuse of discretion under such a circumstance.

CDARS is the Certificate of Deposit Account Registry Service, described earlier in the court’s opinion this way:

Through CDARS, someone with large sums of money can deposit and manage CDs through only one bank. That bank distributes the money among other banks for placement in CDs, ensuring that less than $250,000 goes to each bank. The depositor works only with the “base” bank, but his entire sum of money is FDIC insured because it is properly distributed among various financial institutions.

From time to time, lawyers present me with an investment plan that would in all likelihood benefit the ward over the long run. No matter how favorable the terms, however, we are bound by the restrictions of the statutes.

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