Trusts 101: A Legal Primer for Credit Union Management
As credit union members confront estate planning, they are often advised to consider a trust. One of the most common concerns that all financial institutions, including credit unions, seem to share is how to properly deal with a request for an account titled in the name of a trust.
Much of the confusion which arises comes directly from the lack of a clear understanding about trusts. What type of trust is it? Where does the authority for the trust come from? Who has the authority to control the assets titled to a trust?
2. Is the trust revocable or irrevocable in nature?
A. Upon the death of an individual, a testamentary trust established by his or her will is always irrevocable. Obviously, the testator no longer has the ability to revoke or amend his/her will, and so the terms and provisions of the trust are no longer subject to change.
5. When does a new trustee take over the assets of trust? Successor or alternate trustees are typically designated in the trust document. Usually, they do not begin to serve or act on behalf of a trust unless or until the original or predecessor trustee is unable or unwilling to act, i.e., because of his/her/its death, disability, incapacity, incompetence, removal or resignation. Care should be taken to obtain acceptable evidence of the inability of the original or predecessor trustee to act before engaging in trust business with an alternate or successor trustee. The predecessor trustee’s original certified death certificate, notarized resignation, court order or letter of certification from a licensed physician of his or her condition are examples of the type of documentation that should be requested and reviewed prior to providing information or documentation about a trust asset to a successor or alternate trustee who now claims to act on behalf of the trust.
6. Does a court review the actions of a trustee to ensure that he/she/it is acting appropriately and in accordance with the trust document or order of the court? Generally, all testamentary and court ordered trusts are subject to some level of court supervision, much like a decedent’s estate. Frequently, a trustee is required to submit periodic accountings to the supervising court or its Commissioner of Accounts to evidence the receipts, disbursements and distributions from the trust, with a copy of the same also being provided to the beneficiaries. Alternatively, the trustee of an inter vivos trust is not automatically under a duty to account to the court. The trustee is typically required by applicable trust statutes to provide at least an annual accounting directly to the beneficiaries of a trust for their consideration. In the event that a beneficiary, upon receipt and review of an accounting, believes that a trustee has breached his/her/its fiduciary duty, he or she may file a petition with the appropriate court seeking a formal review of the trustee’s actions. While a credit union should be diligent in its business dealings with a trustee, the law does not place the financial institution, including a credit union, under a duty to examine the administration of the trust or the disposition of the trust assets. It is common for a trustee to request copies of financial records, including cancelled checks, from a credit union in connection with the preparation of a required accounting. Such requests usually occur as a result of lost statements or poor accounting practices, but are certainly commonplace.