As credit union members confront estate planning, they are oftenadvised to consider a trust. One of the most common concerns thatall financial institutions, including credit unions, seem to shareis how to properly deal with a request for an account titled in thename of a trust.

Much of the confusion which arises comes directly from the lackof a clear understanding about trusts. What type of trust is it?Where does the authority for the trust come from? Who has theauthority to control the assets titled to a trust?

At inception, a trust relationship is created when a trustee, beit an individual or an entity, is given control of an asset or anaccount, along with a duty to administer it solely for the benefitof and in the best interests of one or more designatedbeneficiaries.

While a trustee of a trust holds legal title to an asset, thetrue or equitable owner of a trust asset is the designatedbeneficiary. The trustee will always owe a fiduciary duty to thebeneficiary and, as a result, the trustee should act in a selflessmanner, with the authority which has been granted to him/her/it inthe trust instrument and/or any applicable statutes.

While most trust relationship are created by and through theterms and provisions contained in a written document, it should benoted that a trust relationship may be established verbally or evenimplied because of the nature of certain circumstances in existenceat the time. Since those trusts occur with less frequency, we willleave them for another discussion and focus on the trusts createdby a written document.

Trusts can be categorized in many ways. It is helpful tounderstand the type of trust you are dealing with in order torecognize what documentation is needed to evidence the nature ofthe trust relationship. The following analysis of a trust will helpclarify both the nature of the trust relationship and how one'sbusiness with a trust should be properly conducted:

1. Is the trustan inter vivostrust, which was created by someone during his or her lifetime oris it a testamentary trust created by the terms and provisions of adecedent's will and established only after his or her death?

A. If the trustis an inter vivostrust, then the authority for the trust and its governing documentwill likely be a Declaration of Trust (signed by an individual whois the creator and trustee of the trust) or a Trust Agreement(signed by the individual who created the trust and a third partywho served as the original trustee). It is recommended thateither the original or a true copy of the Declaration of Trust orTrust Agreement be obtained and reviewed prior to engaging in anytype of business with an inter vivos trust.

B. If the trustis a testamentarytrust, then the authority for the trust will be found in adecedent's will, any codicils or amendments to the will and anyincorporated statutory references. In order for an individual orentity to be properly recognized as the acting trustee of atestamentary trust, he/she/it must qualify before the appropriatecourt (typically the court which has primary jurisdiction over theadministration of the decedent's estate). It is recommendedthat a certified true copy of the Last Will and Testament of thedecedent and anoriginal Letter or Certificate of Qualification issued by theappropriate court (the original should contain a raised seal) beobtained and reviewed prior to engaging in any type of businesswith a testamentary trust.

C. Is the trustcreated by a courtorder? If so, the court order must be reviewed in order todetermine who has been appointed by the court to act as thetrustee, who the beneficiary is and the applicable terms, authorityand disposition directives of the trust. It is recommended thata certified true copy of the governing court order be obtained andreviewed prior to engaging in any type of business with atestamentary trust.

2. Is the trustrevocable or irrevocable in nature?

A. Upon thedeath of an individual, a testamentary trust establishedby his or her will is always irrevocable. Obviously, the testatorno longer has the ability to revoke or amend his/her will, and sothe terms and provisions of the trust are no longer subject tochange.

B. Aninter vivos trustmay be revocable or irrevocable, depending upon its terms. Mostfrequently, revocable trusts are utilized by individuals to achievetheir estate planning goals, and the creator of the trust reservesto himself or herself the right to revoke or amend the trust or itsterms at any time prior to his or her death or incapacity.Therefore, when dealing with a revocable trust, it is imperative toensure that you have not only the original trust document thatcreated the trust, but also any amendments, revisions or revocationdocuments which may affect the trust and its administration.Typically upon the death of the trust's creator, it becomesirrevocable, and its terms and provisions are thereafter notsubject to change.

3. Who is theparty in control of the trust assets? The trustee of a trust is thesole party in control of the assets titled to or belonging in atrust. The trustee should be clearly designated in the trustdocument and should be required to present proper identification toestablish his or her authority. Where a Will endeavors to create atestamentary trust, the mere nomination of a trustee in thedocument does not provide such individual(s) or entity with therequisite authority to act; only an original Letter or Certificateof Qualification denotes such authority. It is not advisable for acredit union to provide information or documentation relative to atrust account or asset to anyone other than the current, actingtrustee. The duty to account to a beneficiary rests clearly withthe trustee. The credit union strives to protect the privacyinterests of the trust and only provides information to someoneother than the trustee if required to do so by the appropriatelegal authority, i.e., a subpoena of documents or court order.Frequently, beneficiaries demand information directly from afinancial institution relative to a trust account or asset. Sincethe beneficiary merely holds equitable and not legal title to theasset, such an inquiry is best referred to the trustee of a trustfor a timely and accurate response.

4. Can more thanone trustee serve at any given time? Yes. It is not unusual formore than one individual to be appointed to serve as co-trustees.The trust document should be carefully reviewed to see if all ofthe co-trustees must act together for purposes of binding thetrust. Sometimes fewer than all of the co-trustees can bind thetrust, without the necessity of obtaining the act, authorization,signature and/or consent of the other co-trustees. If the trustdocument is silent as to the number of co-trustees required to binda trust, it is best to require the act, consent, authorization orsignature of all of the co-trustees.

5. When does anew trustee take over the assets of trust? Successor or alternatetrustees are typically designated in the trust document. Usually,they do not begin to serve or act on behalf of a trust unless oruntil the original or predecessor trustee is unable or unwilling toact, i.e., because of his/her/its death, disability, incapacity,incompetence, removal or resignation. Care should be taken toobtain acceptable evidence of the inability of the original orpredecessor trustee to act before engaging in trust business withan alternate or successor trustee. The predecessor trustee'soriginal certified death certificate, notarized resignation, courtorder or letter of certification from a licensed physician of hisor her condition are examples of the type of documentation thatshould be requested and reviewed prior to providing information ordocumentation about a trust asset to a successor or alternatetrustee who now claims to act on behalf of the trust.

6. Does a courtreview the actions of a trustee to ensure that he/she/it is actingappropriately and in accordance with the trust document or order ofthe court? Generally, all testamentary and court ordered trusts aresubject to some level of court supervision, much like a decedent'sestate. Frequently, a trustee is required to submit periodicaccountings to the supervising court or its Commissioner ofAccounts to evidence the receipts, disbursements and distributionsfrom the trust, with a copy of the same also being provided to thebeneficiaries. Alternatively, the trustee of an inter vivos trust is notautomatically under a duty to account to the court. The trustee istypically required by applicable trust statutes to provide at leastan annual accounting directly to the beneficiaries of a trust fortheir consideration. In the event that a beneficiary, upon receiptand review of an accounting, believes that a trustee has breachedhis/her/its fiduciary duty, he or she may file a petition with theappropriate court seeking a formal review of the trustee's actions.While a credit union should be diligent in its business dealingswith a trustee, the law does not place the financial institution,including a credit union, under a duty to examine theadministration of the trust or the disposition of the trust assets.It is common for a trustee to request copies of financialrecords, including cancelled checks, from a credit union inconnection with the preparation of a required accounting. Suchrequests usually occur as a result of lost statements or pooraccounting practices, but are certainly commonplace.

Applying a basic analysis to a trust relationship will oftenalleviate some of the confusion that frequently occurs when a trustaccount opened. In order to effectively serve its members, a creditunion must ensure that its employees are educated about what typeof trust they are dealing with, who the appropriate party is withwhom they should be communicating and where the authority for thetrust and its trustee is provided.

Don't be afraid to ask for the necessary documentation from apotential member and be sure to ask all of the pertinent questions.A trust is not a simple legal concept, and it often takes time toclearly understand all of the moving parts that are working in sucha relationship. Legal counsel is an excellent resource and shouldbe consulted whenever uncertainty arises. As the old adage goes, itis always best to be safe, rather than sorry!

E. Andrew Keeney is a Norfolk, Va.-basedcredit union attorney with more than 35 years ofexperience.

Vonda W. Chappell is a partner with Keeney at Kaufman &Canoles and her practice includes corporate law, estate and trustplanning and administration, and guardianship and conservatorshipmatters.