Good afternoon:

I have a quick question--- Is there any regulatory wording that states a financial institution must receive the full trust document in order to proceed with opening a new account?

I realize that with respects to FDIC coverage "buyer beware" in this case, but I didn't think that there was any specific regulation covering this issue?

If someone could please confirm this.

Also on the heels of that question than are we also in a KYC position as well?

Thanks again,
Lisa

Our practice is to get a "Memorandum of Trust." It tells us what we need to know about the trust such as who the trustee(s) is (are) and who the successor trustee is. Obtaining a full copy of the trust isn't going to add much and you'll have the problem of storing what could be a huge document that contains stuff of no business to the bank such as the grantor's deepest feeling about that nephew who never amounted to much, etc. The trust usually covers all assets of the grantor, not just the deposit accounts. Those issues are of no concern to the bank as a depository so the Memorandum of Trust gives the bank what it needs.

Steve, is the Memorandum of Trust a standard document provided by a lawyer or something else?

I take it we are talking about a regular deposit account here, as opposed to a trust account? If so, I agree with Steve. If the bank has a Trust Department and acts as trustee, of course, I assume the answer would be different. I know it is in our case.

Check your state banking code. In Oklahoma this is addressed in Article IX - Deposits and Collections - Notary Public-Protests. Hope this helps.

Yes, the attorney drafting the full trust prepares the Memorandum of Trust. We went round and round with the lawyers on this issue. At first we asked for the full trust so we would know who the trustee was, etc. But the folks were understandably reluctant to provide it. So the compromise we reached is the Memorandum. It basicially says a trust exists, it now owns the assets that used to beong to the grantor, the trustee is _____ , should that person die the new trustee is_____ and the bank can honor any check or withdrawal signed by the trustee and has no duty to verify the purpose is in accord with the trust.

It seems like I'm the only person on the planet that hasn't transferred my earthly belongings (er, sea bottom belongings) to a trust. We had to do something to minimize the paperwork but still open the accounts. The Memorandum did the trick.

In reply to:

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It seems like I'm the only person on the planet that hasn't transferred my earthly belongings (er, sea bottom belongings) to a trust.

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Nope, there's two of us. Thanks for the info.

The proposed CIP regulations (in discussing verification through documents) indicated that for entities such as a trust, documents showing the existence of the entity such as a "trust instrument" could be used. What the final regulations will say is anyone's guess.

From one that works Compliance almost exclusively on the Trust side, the Memorandum or Trust should be sufficient for your needs in setting up a deposit account for the trust and/or the trustee. Some states provide for a Certificate of Trust that accomplishes the same thing. Additionally some attorneys will prepare a document that looks identical to the trust without the dispositive provisions.

Keep in mind that when many people establish trusts, they do so to avoid probate and the public record of who gets what and how much. With a trust (generally speaking) the disposition and distribution of trust assets is not public knowledge and is intended to remain confidential.

Now I'm sure that you have procedures in place to preserve the confidentiality of deposit records and they probably work very well most of the time. But human nature being what it is, the higher profile the client and the larger the balance, the greater the level of curiosity will be and the greater the likelihood that all those privacy and confidentiality of customer information procedures you have in place as a result of GBLA won't work.

If you have a trust division/department/company, they generally remain pretty tight-lipped about who, what, how much, etc. regarding their client base, that's one reason the clients hire them as their professional trustee or investment manager.

Hope this helps.

Here in CA, litigious capital, we have been advised to obtain a Trust Certification and not retain the entire trust document. (accounts and loans)

P.S. Make that 3 who haven't transferred assets to a trust.

Ted is correct, there is currently no regulatory requirement that you obtain a complete copy of the trust. However, the proposed CIP requirements suggested you must obtain a copy in order to prove the trust's existence. (This being "proof" even though I can purchase 3 different pieces of software at Office Depot that will produce a credible trust document?)

Banks should decide in advance what documentation is necessary when they are asked to follow the direction of a trustee. The choices include:
*the first and last page of the trust as well as any pages where successor trustees are named and pages where specific powers; e.g. to borrow money, are enumerated;
*a synopsis, memorandum or certificate of trust prepared by the attorney who drafted it and signed by a trustee or
*a complete copy of the trust.

As for the complete copy, "Never ask for a piece of paper you do not intend to read." Reading and digesting trust documents is not an everyday skill, but your bank can be held liable for the trustee's actions if you "knew" they were not in keeping with the terms of the trust.

Karen's advice is excellent. If your state provides for a "certificate of trust" as a substitute; e.g. Texas, the statute is for the protection of your bank. Use it. In other states, have your attorney develop a fill-in-the-blank form for the draftsman's completion and signature of the trustee. Find out what you might reasonably need to know about the trust terms, no more. (You don't have the customer complete the form because the number of people who have a trust and understand it is even smaller than the number who do not have a trust.)

Ken wrote:

"the number of people who have a trust and understand it is even smaller than the number who do not have a trust."

Boy, ain't that the truth. How many people set up these trusts only to turn around and start naming "authorized signers" on the trust's deposit accounts? A trustee cannot delegate their duties. So the minute they give someone else signing authority they just defeated one of the purposes of the trust.

I tried to put my assets in a trust, but due to a typographical error they ended up in a "truss." So, instead of protecting my assets, my money was used to purchase a medical device to reduce hernia pressure.

In a conversation with the FDIC a couple of weeks ago, it was their recommendation that the bank keep a copy of the entire agreement - particularly in the cases of Revocable Trusts. The FDIC needs to see the document to look for qualifying beneficiaries and "defeating contingencies," and would have the document in hand.

Ken is right on the money - again.

If your state provides for trust certifications by all means use them, they PROTECT the bank if used in good faith and without actual knowledge that a trustee is exceeding his/her authority. And if you use them, DO NOT get a copy of the trust because you are then pretty well charged with knowledge of everything in it. (I have advised our underwriters of this but they insist on getting the full trust document - can't teach some dogs any tricks!)

If your state does not have statutes for trust certifications (or whatever name your state may use) get some simple guidance from counsel as to what you need. Each state will have different law (statutory and case law) on the duties of third parties dealing with trusts. It will be money well spent.

Repeating the California theme again, the Probate code states:

18100.5. (a) The trustee may present a certification of trust to any person in lieu of providing a copy of the trust instrument to establish the existence or terms of the trust. A certification of trust may be executed by the trustee voluntarily or at the request of the person with whom the trustee is dealing.

d) The certification of trust shall not be required to contain the dispositive provisions of the trust which set forth the distribution of the trust estate.
(e) A person may require that the trustee offering the
certification of trust provide copies of those excerpts from the original trust documents and amendments thereto which designate the trustee and confer upon the trustee the power to act in the pending transaction. Nothing in this section is intended to require or imply an obligation to provide the dispositive provisions of the trust or the entire trust and amendments thereto.
(f) A person who acts in reliance upon a certification of trust without actual knowledge that the representations contained therein are incorrect is not liable to any person for so acting. A person who does not have actual knowledge that the facts contained in the
certification of trust are incorrect may assume without inquiry the existence of the facts contained in the certification of trust.

Actual knowledge shall not be inferred solely from the fact that a copy of all or part of the trust instrument is held by the person relying upon the trust certification. Any transaction, and any lien created thereby, entered into by the trustee and a person acting in reliance upon a certification of trust shall be enforceable against
the trust assets. However, if the person has actual knowledge that the trustee is acting outside the scope of the trust, then the transaction is not enforceable against the trust assets. Nothing contained herein shall limit the rights of the beneficiaries of the trust against the trustee.

18100.5 (h) Except when requested by a beneficiary or in the context of litigation concerning a trust and subject to the provisions of subdivision (e), any person making a demand for the trust documents in addition to a certification of trust to prove facts set forth in the certification of trust acceptable to the third party shall be liable for damages, including attorney's fees, incurred as a result of the refusal to accept the certification of trust in lieu of the requested documents if the court determines that the person acted in bad faith in requesting the trust documents.



Calif. Probate Code 18100 - 18104

I disagree with the FDIC's stance. In the unlikely event the bank fails and the FDIC has to pay out and they have to worry about whether the trust account pay out has to be combined with other funds of related individuals, those full trust documents will be asked for and produced to the satisfaction of the FDIC.

For the FDIC to say the bank should keep, store and protect from prying eyes the full contents of a private document that is of no other concern to the bank just to make the FDIC's job easier in case a longshot event occurs is extreme.

Would that same FDIC person say one should always wear a life jacket to dinner on a cruise ship just in case it sinks before dessert?

I believe it was more to save time should the FDIC have to contact all customers to review all trust documents to determine qualified beneficiaries. I was only passing on what I was told....

Ken,

I agree with the alternatives you have presented and have shared them with my counterpart at our affiliated broker-dealer. He has asked whether keeping the application for the TIN for the trust and the IRS' approval/response would also be a suitable alternative. Your comments or comments from others would be appreciated.

Kropper,
My opinion is "no," those documents would not suffice for CIP purposes. It's been years since I was a trust officer, but my understanding remains that the IRS does not verify the existence of a trust when it issues EIN - the number alone does not prove anything.

More importantly, the bank (broker-dealer) needs some of the information from the trust so it will know who to deal with in the future. For example, if the current trustee dies and his son comes in announcing, "I am the new trustee" how will the bank know if that is correct? Banks require copies of trust instruments, synopsese etc. in order to get information before they actually need it. The easiest time to get the documentation is when the account is opened. If they wait until later, when the information is essential, customers often say, "You didn't need a copy before, so you don't need it now."