Chapter 20 - § 20.24 • INVESTMENTS — PRUDENT INVESTMENT RULE

• Jurisdiction: Colorado

§ 20.24 • INVESTMENTS — PRUDENT INVESTMENT RULE

At common law, unless otherwise provided by will, it was commonly held that a representative had no inherent power to invest. This was for the reason that the duty of the representative was merely to gather together the assets, sell whatever of the personal property necessary to pay debts, and turn the remainder over to the next of kin, in kind. Now, by statute and by custom, the representative is expected to make a reasonable return on the assets in his or her hands during the period of administration, taking into consideration that the period of administration usually is comparatively short (see § 20.11). If, however, he or she is acting under a will that provides for one or more trusts, and particularly if he or she is the trustee named, the representative will conduct himself or herself during probate administration in much the same way as though he or she were then acting as trustee.

If the representative expects to be able to make final distribution of the estate within six or eight months, as would be the case if the administration is uncomplicated by litigation or tax problems, he or she probably will not disturb very much the investments left by the decedent — certainly not without discussing the matter with the persons in interest. Under such circumstances, any cash on hand at death or produced by the sale of property should be placed in savings accounts in banks (see § 20.10), money market funds, or invested in short-term U.S. government securities, such as treasury bills or certificates of indebtedness.

If, on the other hand, it is obvious from the beginning that the probate administration will be prolonged by litigation or tax problems, or that it will be followed by testamentary trusts, the representative will conduct himself or herself differently and will consider the advisability of readjusting the whole investment program from the longer-term standpoint. He or she will not necessarily put money that may be needed for taxes and claims in savings accounts or extremely short-term government securities, but will space out his or her maturities if that action will sufficiently improve the yield to justify the market risk so that the securities will become due about the time the money is needed. The remainder of the portfolio of investments will be balanced between stocks and creditor securities (bonds, debentures, and mortgages). The nature of the balance will differ at different stages of the...