Depositing a Trust Check Into Individual Account
Answer by Mary Beth Guard and Ken Golliher, BOL Guru Guru Bio
Question: I need to be pointed to the statute that deals with depositing a check payable to a trust into an individual account. The customer did not want to produce the trust document showing who could sign for the trust. The customer wants to know the law we are using to refuse the check without the proper documents.
Answer by Mary Beth Guard: There's no single statute to refer you to. You need to pull up your state's version of Articles 3 and 4 of the UCC, because it's the interplay of several statutes there that will guide you.
The bottom line is that when a depository bank accepts a check for deposit and sends it through, it is warranting that there is a good chain of endorsements. If the check is made payable to a trust, it must be endorsed by the trustee and you may be on notice of breach of fiduciary duty if you allow the item to be deposited into a personal account. If you don't even have a copy of a certificate of trust or memorandum of trust, you don't know who the trustee even is.
If the check is not endorsed and received by the proper payee, it is not properly payable. The drawer can go to his bank and demand his money back. His bank can go back up the chain with a breach of warranty claim and the depository bank will typically be the one to bear the loss.
This is a complex area of the law and trying to boil it all down to explain it to the customer is going to be a frustrating experience, I fear, particularly since you can't just point to a neat and simple statute that says it all.
Answer by Ken Golliher: A trust is a legal entity; it is a person as far as the law is concerned. Allowing someone to deposit a check payable to a trust into an individual account is like allowing Ken to deposit a check payable to Mary Beth into his account. He's not the same person. He has no right to sign her name.
If she has already endorsed the check, then you might agree to let Ken to sign and deposit it, accepting his warranties regarding her signature. (Even then, since you did not see her sign it, you might refuse to accept it for deposit to his account.) However, the same thought process does not apply if the check was payable to an entity, including a trustee. Entities very rarely endorse checks over to third parties. Trustees, in particular, have a fiduciary responsibility to account for all receipts, something this practice would eliminate.
As Mary Beth notes, this answer depends on the interrelationship between several sections of the UCC. You are not obligated to provide your customer with a legal education.
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