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New Hampshire State Library
About Us - Departments - Library Development Services - Trust Fund Investing

The NH General Court passed a new law regarding the standards for investing of trust funds which applies to Library Trustees holding the principle of trust funds. Chapter 264 of the NH Laws of 2008 (formerly SB 377) and a letter from the Charitable Trusts Unit of the NH Department of Justice explaining the change are below for your convenience.

June 30, 2008

TO: ALL TRUSTEES OF TRUST FUNDS and THOSE LIBRARY TRUSTEES HOLDING the principal of trust funds in their custody
RE: SB 377 Relative to the Application of the Prudent Investor Rule to Town Trust Funds

Senate Bill 377 was signed by Governor Lynch on June 26, 2008 and will become effective on August 25, 2008. This new law will provide Trustees of Trust Funds and, in some cases, Library Trustees with greatly expanded choices for the investment of the privately donated trust funds held in their custody. SB 377 changes laws that have been in effect for many years and this letter is designed to familiarize Trustees with the opportunities, duties, and responsibilities contained in the new law.

  • The trusts affected by the new law include cemetery perpetual care funds, and privately donated funds for parks, cemeteries, scholarships, the poor and needy, beautification projects, etc. It does not include any taxpayer-funded items including capital reserve funds and/or any trusts created under RSA 31:19-a. The investment standards for taxpayer-funded items are governed by other sections of the Statutes and are not affected by the new law.

The current investment standard for the privately donated funds administered by Trustees of Trust Funds is found in RSA 31:25 and RSA 31:25-b. RSA 31:25 lists the types of investments that are currently “legal” for investment by Trustees of Trust Funds while RSA 31:25-b sets the investment standard. Until August 25, 2008 all Trustees of Trust Funds, and any Library Trustees holding the principal of privately donated funds, are required to invest these funds according to a very conservative standard known as the Prudent Man Rule. On August 25, 2008 the Trustees of Trust Funds and Library Trustees will have the legal authority to vote to change their investment standard from the Prudent Man Rule to the Prudent Investor Rule under certain circumstances specified in the new law.

  • What is the difference between the Prudent Man Rule and the Prudent Investor Rule?

Under the Prudent Man Rule each investment is considered and judged on its individual merits and must be of the highest investment quality with little or no risk to the preservation of principal.

Under the Prudent Investor Rule no category or type of investment is deemed inherently imprudent. Instead suitability to the overall portfolio’s goals and objectives is considered to be the determining factor. However, while the Trustees have greater flexibility in portfolio management, speculation or outright risk taking is not sanctioned by the Rule.

[Please note if the language of a particular will or trust instrument specifies the investment standard to be the Prudent Man Rule, the Trustees may not change the standard for that specific trust fund without first obtaining permission from the Probate Court.]

  • Can the Trustees of Trust Funds simply vote to adopt the Prudent Investor Rule after August 25, 2008?
    • The Trustees should decide whether or not a change in the investment standard based on their short and long-term goals and objectives is appropriate and if the answer is yes, the Trustees must comply with the following new requirements:

“Application of Prudent Investor Rule. The trustees of trust funds may manage and invest such funds in accordance with the prudent investor rule under RSA 564-B:9-901 – RSA 564-B:9-906 without regard to the investment limitations of RSA 31:25 and RSA 31:25-a, provided, however, the trustees of trust funds:

I. Notify the attorney general in writing of their decision to invest according to the prudent investor rule; and

II. Hire or employ the trust department of a bank or a brokerage firm to provide investment advice and assistance under RSA 31:38-a, III.” (Emphasis added)

PLEASE NOTE: Adoption of the Prudent Investor Rule under SB 377 does not authorize the Trustees of Trust Funds and/or Library Trustees to adopt a spending policy (see RSA 292-B:2 V-d). Principal and all capital gains in permanently restricted (income only) trust funds remains restricted and cannot be expended even if the Prudent Investor Rule has been adopted.

No matter which investment standard the Trustees select they must adopt an investment policy for all investments made by them or by their agents for any trust funds in their custody in conformance with the provisions of applicable statutes, review and confirm the investment policy at least annually and file a copy of the investment policy with the Attorney General.

A copy of the final version of Senate Bill 377 is enclosed for your information. If any town or city would like to host an informational session on the new law for Trustees of Trust Funds and Library Trustees as well as other officials in their town/city and the surrounding communities we would be pleased to attend and to provide additional information and training on the new law and its implications. Please contact Audrey Blodgett at audrey.blodgett@doj.nh.gov to schedule a session.

If you have any questions please do not hesitate to contact our office.

Very truly yours,

Terry M. Knowles, Assistant Director
Charitable Trusts Unit
(603) 271-3591
terry.knowles@doj.nh.gov

TMK:ab

Enclosure

cc: Department of Revenue, Municipal Services Division
Jerry Little, New Hampshire Bankers’ Association

* * * * *

CHAPTER 264

SB 377 – FINAL VERSION

16Apr2008… 1127h

2008 SESSION

08-2652

06/09

SENATE BILL 377

AN ACT relative to the application of the prudent investor rule to town trust funds.

SPONSORS: Sen. Burling, Dist 5; Sen. Hassan, Dist 23; Sen. Sgambati, Dist 4; Sen. Barnes, Dist 17

COMMITTEE: Public and Municipal Affairs

ANALYSIS

This bill extends the application of the prudent investor rule to town trust funds.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

16Apr2008… 1127h

08-2652

06/09

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Eight

AN ACT relative to the application of the prudent investor rule to town trust funds.

Be it Enacted by the Senate and House of Representatives in General Court convened:

264:1 New Section; Application of Prudent Investor Rule. Amend RSA 31 by inserting after section 25-c the following new section:

31:25-d Application of Prudent Investor Rule. The trustees of trust funds may manage and invest such funds in accordance with the prudent investor rule under RSA 564-B:9-901 - RSA 564-B:9-906 without regard to the investment limitations of RSA 31:25 and RSA 31:25-a, provided, however, the trustees of trust funds:

I. Notify the attorney general in writing of their decision to invest according to the prudent investor rule; and

II. Hire or employ the trust department of a bank or a brokerage firm to provide investment advice and assistance under RSA 31:38-a, III.

264:2 Effective Date. This act shall take effect 60 days after its passage.

Approved: June 26, 2008

Effective Date: August 25, 2008

source: http://www.gencourt.state.nh.us/legislation/2008/SB0377.html

 
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