HD40 - Fiduciary Investments

  • Published: 1992
  • Author: Virginia Bar Association and Virginia Bankers Association
  • Enabling Authority: House Joint Resolution 395 (Regular Session, 1991)

Executive Summary:
Pursuant to House Joint Resolution 395 sponsored by the Honorable Gladys B. Keating, the General Assembly at its 1991 Regular Session requested the Wills, Trusts and Estates Section of the Virginia Bar Association (the "Section") and the Virginia Bankers Association to study the status of Virginia's lawful fiduciary investments. The groups were asked to recommend amendments, deletions and additions and to make other recommendations as deemed appropriate. A copy of the Resolution is attached as Exhibit "A." Virginia's list of lawful fiduciary investments (generally known as the "legal list") is found at Virginia Code § 26-40. A copy of the current statute is attached as Exhibit "B."

Previously, in 1990, the Section had appointed a subcommittee to study possible changes to Virginia's current prudent man rule, Virginia Code § 26-45.1 (Exhibit "C"), and had asked the Virginia Society of Certified Public Accountants and the Virginia Bankers Association to take part in the project. Although House Joint Resolution 395 refers only to "other recommendations as deemed appropriate," the Committee ultimately constituted by the Section and the Bankers Association (the "Committee") was advised by Delegate W. Tayloe Murphy, Jr., an original co-patron of the Resolution, that this reference was intended to extend the area of the Committee's study to include the prudent man rule if the Committee should think it appropriate.

The Virginia Bankers Association appointed its representatives in the Spring of 1991. By that time, the Virginia Society of Certified Public Accountants had appointed Mark T. Nash, CPA, of Richmond to take part in the study originally contemplated by the Bar Association. The Committee acknowledged that House Joint Resolution 395 made no reference to accountancy but asked Mr. Nash to sit with them during their deliberations. He kindly did so.

As finally constituted, the committee appointed pursuant to Delegate Keating's resolution consisted of seven lawyers, Michael Armstrong, Richmond; James G. Arthur, Arlington; Dennis I. Belcher, Richmond; R. Hart Lee, Richmond; Linda F. Rigsby, Richmond; J. Hume Taylor, Jr., Norfolk; and Harry J. Warthen, III, Richmond; and three bankers, Thomas A. Davis, Staunton; Mrs. Becky T. Kelly, Richmond; and Joseph E. Machatton, McLean. Mr. Warthen served as Chairman.

The Committee held its meetings in Richmond beginning in late July. General advice concerning drafting techniques and the preparation of the Committee report was kindly provided by Mary Devine, Esq., of the Division of Legislative Services. The Committee also had the advice of investment officers from Crestar and Sovran Banks and from counsel for the Virginia Bankers Association. In addition, helpful suggestions were received from Thomas S. Word, Jr., of the Richmond Bar.

SUMMARY

Following its review of Virginia law and current investment philosophy and fiduciary practice, the Committee makes the following findings and recommendations.

1. Notwithstanding certain negative aspects of a legal list (most notably in a period of protracted inflation), the Committee concludes that a legal list of investments is potentially helpful in certain situations in providing safe investments for the fiduciary who wishes protection for himself and maintenance of principal for the beneficiary. The Committee also believes, however, that the legal list in many cases no longer represents absolutely safe investments and, in addition, in large part is not helpful to many fiduciaries in view of the statute's many conditions and restrictions defining the availability of particular types of investments. Thus, the Committee proposes a revised legal list the guiding principles of which are a renewed emphasis on safety of principal and ease of use. The proposed revised list appears as Exhibit "D."

2. The Committee concludes that Virginia's prudent man rule has failed to keep pace with developments in investments and finance, unnecessarily discourages investment specifically designed to fit the needs of particular beneficiaries, and should be revised in the best interest of the people of the Commonwealth. The suggested revisions include (1) the removal of the "anti-netting" rule, (2) a stated duty to diversify and to review investments as a part of the investment portfolio as a whole, and (3) an obligation to take the interests of all beneficiaries into account in making investment decisions. The proposed changes are generally in line with what has come to be called the prudent investor rule. The proposed revised statute appears as Exhibit "E."