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?

At inception, a trust relationship is created when a trustee, be it an individual or an entity, is given control of an asset or an account, along with a duty to administer it solely for the benefit of and in the best interests of one or more designated beneficiaries.

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

While most trust relationship are created by and through the terms and provisions contained in a written document, it should be noted that a trust relationship may be established verbally or even implied because of the nature of certain circumstances in existence at the time. Since those trusts occur with less frequency, we will leave them for another discussion and focus on the trusts created by a written document.

Trusts can be categorized in many ways. It is helpful to understand the type of trust you are dealing with in order to recognize what documentation is needed to evidence the nature of the trust relationship. The following analysis of a trust will help clarify both the nature of the trust relationship and how one’s business with a trust should be properly conducted:

1.         Is the trust an inter vivos trust, which was created by someone during his or her lifetime or is it a testamentary trust created by the terms and provisions of a decedent’s will and established only after his or her death?

A.         If the trust is an inter vivos trust, then the authority for the trust and its governing document will likely be a Declaration of Trust (signed by an individual who is the creator and trustee of the trust) or a Trust Agreement (signed by the individual who created the trust and a third party who served as the original trustee). It is recommended that either the original or a true copy of the Declaration of Trust or Trust Agreement be obtained and reviewed prior to engaging in any type of business with an inter vivos trust.

B.         If the trust is a testamentary trust, then the authority for the trust will be found in a decedent’s will, any codicils or amendments to the will and any incorporated statutory references. In order for an individual or entity to be properly recognized as the acting trustee of a testamentary trust, he/she/it must qualify before the appropriate court (typically the court which has primary jurisdiction over the administration of the decedent’s estate). It is recommended that a certified true copy of the Last Will and Testament of the decedent and an original Letter or Certificate of Qualification issued by the appropriate court (the original should contain a raised seal) be obtained and reviewed prior to engaging in any type of business with a testamentary trust.

C.        Is the trust created by a court order? If so, the court order must be reviewed in order to determine who has been appointed by the court to act as the trustee, who the beneficiary is and the applicable terms, authority and disposition directives of the trust. It is recommended that a certified true copy of the governing court order be obtained and reviewed prior to engaging in any type of business with a testamentary 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.

B.         An inter vivos trust may be revocable or irrevocable, depending upon its terms. Most frequently, revocable trusts are utilized by individuals to achieve their estate planning goals, and the creator of the trust reserves to himself or herself the right to revoke or amend the trust or its terms at any time prior to his or her death or incapacity. Therefore, when dealing with a revocable trust, it is imperative to ensure that you have not only the original trust document that created the trust, but also any amendments, revisions or revocation documents which may affect the trust and its administration. Typically upon the death of the trust’s creator, it becomes irrevocable, and its terms and provisions are thereafter not subject to change.

3.         Who is the party in control of the trust assets? The trustee of a trust is the sole party in control of the assets titled to or belonging in a trust. The trustee should be clearly designated in the trust document and should be required to present proper identification to establish his or her authority. Where a Will endeavors to create a testamentary trust, the mere nomination of a trustee in the document does not provide such individual(s) or entity with the requisite authority to act; only an original Letter or Certificate of Qualification denotes such authority. It is not advisable for a credit union to provide information or documentation relative to a trust account or asset to anyone other than the current, acting trustee. The duty to account to a beneficiary rests clearly with the trustee. The credit union strives to protect the privacy interests of the trust and only provides information to someone other than the trustee if required to do so by the appropriate legal authority, i.e., a subpoena of documents or court order. Frequently, beneficiaries demand information directly from a financial institution relative to a trust account or asset. Since the beneficiary merely holds equitable and not legal title to the asset, such an inquiry is best referred to the trustee of a trust for a timely and accurate response.

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

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.

Applying a basic analysis to a trust relationship will often alleviate some of the confusion that frequently occurs when a trust account opened. In order to effectively serve its members, a credit union must ensure that its employees are educated about what type of trust they are dealing with, who the appropriate party is with whom they should be communicating and where the authority for the trust and its trustee is provided.

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

 E. Andrew Keeney is a Norfolk, Va.-based credit union attorney with more than 35 years of experience.

Vonda W. Chappell is a partner with Keeney at Kaufman & Canoles and her practice includes corporate law, estate and trust planning and administration, and guardianship and conservatorship matters.