Legal Definitions - legal list

A legal list refers to a specific catalog of investment options that certain financial institutions and individuals managing money for others are legally permitted to choose from. These lists are typically established by state laws and are designed to ensure that funds held in trust or managed by institutions like banks, insurance companies, and pension funds are invested in a conservative, low-risk manner. The primary goal is to protect the assets of clients, policyholders, or beneficiaries by preventing overly speculative or risky investments.

• Example 1: State Pension Fund Investments

  Imagine a state government that manages a large pension fund for its retired public employees, such as teachers and firefighters. State law mandates that the pension fund's investments must adhere to a "legal list" of approved securities. This list might include U.S. Treasury bonds, highly-rated municipal bonds, and certain established, financially stable company stocks. This requirement prevents the fund managers from investing in high-risk ventures like speculative startups or volatile commodities, thereby safeguarding the retirement savings of thousands of public servants who depend on these funds.

• Example 2: Trust Fund for a Minor

  Consider a scenario where a grandparent sets up a trust fund for their grandchild, who is a minor, to pay for future college expenses. A bank is appointed to act as the trustee, managing the money until the grandchild reaches adulthood. The state's trust laws include a "legal list" specifying the types of investments a trustee (the bank) can make with the grandchild's funds. This list might allow for investments in certificates of deposit (CDs) or government bonds but explicitly prohibit speculative investments like cryptocurrency or penny stocks. This ensures the money grows safely and predictably, fulfilling the grandparent's intent to provide for their education without undue risk.

• Example 3: Insurance Company Reserves

  An insurance company holds significant financial reserves to pay out future claims to its policyholders, whether for car accidents, health issues, or property damage. State insurance regulations often require these companies to invest a substantial portion of their reserves only in assets found on a "legal list." This list typically includes very stable, liquid investments such as government securities or highly-rated corporate bonds. This legal requirement protects policyholders by ensuring the company has sufficient, secure assets readily available to pay claims, even during economic downturns, rather than having its critical capital tied up in volatile or illiquid investments.