Section 11.25 Management and Investment of Custodial Property

• Library: Trusts and Powers 2013 Supp

C. (§11.25) Management and Investment of Custodial Property

“The custodian shall collect, hold, maintain, manage, invest and reinvest” custodial property for the minor. Section 404.051.1, RSMo 2000. In dealing with custodial property, the custodian is to act and perform these duties as an ordinary and prudent person dealing with the property and conducting the affairs of another, “except that all investments made on or after August 28, 1998, shall be in accordance with the provisions of the Missouri prudent investor act, sections 469.900 to 469.913, RSMo.” Section 404.051.6. The Missouri Prudent Investor Act, §§ 469.900–469.913, RSMo Supp. 2005, based on the Uniform Prudent Investor Act, 7B U.L.A. 286 (2000), was adopted in 1996 and became applicable to custodians under the MTML by an amendment to § 404.051.6 in 1998. The MUTC moved the Missouri Prudent Investor Act to Chapter 469, RSMo, effective January 1, 2005. Thus, as of August 28, 1998, custodians are subject to the provisions of the Missouri Prudent Investor Act. If the custodian was selected on the basis of a representation of special skills, the custodian is under a duty to use this expertise. Section 404.051.6; see § 475.130.1, RSMo 2000 (relating to conservators).

Section 404.051.8 grants the custodian a very broad power and discretion to make investments for a minor. This includes the power to bring a derivative suit on behalf of minors who own stock. Meltzer v. Wattles, 244 N.Y.S.2d 100 (N.Y. App. Div. 1963). Section 404.051.8 provides that the custodian can do anything the minor could do as an adult if unmarried and not incapacitated. It replaces a specific list of powers contained in § 404.040.6, RSMo 1978. But it specifically negates the power to make a gift of the minor’s property. The broad power set forth in § 404.051.8 is subject to the degree of care set forth in § 404.051.6. As discussed above, for investments before August 28, 1998, the standard of care was the prudent person rule. The custodian’s broad investment powers are subject to the prudent investor standard as to investments made after August 28, 1998. Section 404.051.6.

Under § 469.902.1, RSMo Supp. 2005, of the Missouri Prudent Investor Act, a fiduciary is to invest and manage the assets as a prudent investor would “by considering the purposes, terms, distribution requirements, and other circumstances of the trust.” The same rules apply to fiduciaries holding custodial property subject to the MTML. The governing standard is the exercise of reasonable care, skill, and caution. Investment and management decisions regarding individual assets and courses of action must be evaluated in the context of the portfolio as a whole and as part of an overall investment strategy, bearing in mind suitable risk and return objectives, and not in isolation. Section 469.902.2. Section 469.902.3 lists several factors for a fiduciary to consider in making investment choices. These include the following:

General economic conditions The possible effect of inflation or deflation The expected tax consequences of the investment decision The role each investment plays within the overall portfolio The expected total return from income and the appreciation of capital Other known resources of the beneficiary The need for liquidity, regularity of income, and preservation or appreciation of capital An asset’s special relationship or special value, if any, to the purposes of the trust or the beneficiary The size of the portfolio and the nature and estimated duration and distribution requirements under the governing document

Section 469.902.3.

What is required will be determined by the nature of the property, and from this nature the primary purpose of the...