Understanding Revocable and Irrevocable Trust Documents

Transcription

1 Understanding Revocable and Irrevocable Trust Documents By Terri D. Thomas, J.D. March 23, 2016 The information contained in this material and the accompanying presentation is designed for reference use only. It is presented with the understanding that Terri Thomas is not rendering specific legal advice, and use of the same does not create an attorney-client relationship. If specific legal advice or other expert assistance is required, the user should contact a competent professional. 2016, Terri D. Thomas 1

2 Presented by: Terri D. Thomas, JD is the Director of the Kansas Bankers Association Legal Department, which specializes in providing compliance and legal assistance to Kansas banks. Terri has worked with financial institutions for thirty years in various capacities. Most notably, she served for fourteen years as in-house legal counsel and trust officer for Bank of America and its Kansas predecessors. She has also served as a trust department manager and branch manager. Receiving her Bachelor of Arts degree from Kansas State University in 1985, Terri continued her education at Washburn University School of Law and obtained her Juris Doctor in Previously, she has served as an Adjunct Professor at Washburn University School of Law in Topeka, Kansas and at the University of Kansas School of Law in Lawrence, Kansas, and is a frequent seminar presenter for financial associations in the Midwest. 2016, Terri D. Thomas 2

3 I. Purpose A Trust is a completed transfer of ownership of property by the owner (grantor, trustor or settlor) to another (trustee) for the immediate or eventual benefit of a third party (beneficiary). A Trust can be established for any lawful purpose. Most commonly, a trust is used for the following: 1. To defer a gift; 2. Receive later or periodic gifts; 3. Segregate funds for a special purpose; 4. Protect oneself against possible or later incompetency; 5. Secure additional deposit insurance; 6. Avoid probate; 7. Avoid the possibility of a will contest; 8. Defer federal taxes; 9. Provide for the care of another person (or for an animal); 10. Fund a charity; 11. Spendthrift protection for another; 12. To incent behavior. Establishing a trust has advantages and consequences. The financial institution should never find itself in the position of advising a client as to whether a trust should be created, or the resulting legal and tax consequences. II. Parties to a Trust Agreement The Grantor (also know as the Settlor or Trustor ) establishes the trust and transfers property which he owns into the trust. The Grantor appoints the trustee and all successors and determines the beneficiaries. The Trustee is the legal representative and controller of the trust assets. Sometimes the Grantor is also the Trustee, but sometimes the Trustee is another party. The Trustee can be a natural person or corporation (like a financial institution s Trust Department). Corporate Trustees are granted trust powers by state or national financial institution regulators. The Trustee has a fiduciary duty to the beneficiary, which means that the Trustee must use a higher standard of care than the average person when managing the assets of the trust. The Beneficiary is the party designated to receive the benefits accruing from the trust property. The beneficiary is often times the Grantor. The trust Property can be anything of value, such as stocks, bonds, real estate, bank accounts or insurance policies. The only condition is that the 2016, Terri D. Thomas 3

4 Grantor (or the person who conveys it to the trust) must have some ownership interest in the property and cannot convey more than he owns to the Trust. III. Trust Types A Revocable trust is one in which the Grantor can change the terms, beneficiaries, trustee or other features at any point during the Grantor s lifetime, or potentially, after, if the power to revoke has been given to another. An Irrevocable trust is one in which the Grantor cannot change any of the terms or features of the trust after the trust has been funded. It typically takes a court intervention to revoke or modify the terms. Irrevocable trusts are used for immediate income transfers and tax advantages, while Revocable trusts are most often used for incapacity and testamentary purposes. IV. Requirements of a Valid Trust There are several requirements for the creation of a valid trust. Because the transaction is contractual in nature, the first requirement is that the grantor be legally capacitated. This means the grantor must be of legal contractual age (usually 18) and be mentally able to transact business. The grantor (or other donor) must have title or interest in the property to be conveyed to the trust. A grantor/donor cannot convey property that he does not own or in which he has no legal interest. The grantor (or other donor) must convey all legal interest in the property to the Trustee, so that the Trust owns the property. The trust cannot claim an interest in property which has not been transferred into its name (i.e. accounts that remain in the individual name of the grantor). The grantor must intend to create the trust. Usually this is performed by the preparation and signing of a written trust agreement. Under certain circumstances, a trust agreement does not have to be in writing, however, the normal practice is to have a written document. The trust must have a definitive beneficiary, whether a person, organization or animal (permitted in many states). Trust common law requires that there be at least one trustee or one beneficiary which is different from the grantor. For instance, a grantor cannot be the sole grantor, sole trustee and sole beneficiary of a trust. If this occurs, the trust is deemed to be void and the property ownership will revert to the grantor. However, the trust can have the grantor as a co- 2016, Terri D. Thomas 4

5 trustee and/or a co-beneficiary and be valid. The trustee of a trust must have some duties to perform under the trust agreement. A grantor cannot keep all of the powers and not convey any powers to the trustee. The Uniform Trust Code and the Uniform Trustees Powers Act (see below) provide that every trustee will have automatic powers to perform a wide array of transactions on behalf of the trust, unless the trust agreement specifically limits or removes the powers. A trust must be established for a legal purpose and the purpose must possible to achieve. A trust cannot violate the law or be established to perform acts which are against public policy. For example, a trust cannot be established which would require a beneficiary to be divorced (against public policy) or commit a crime (illegal) before receiving assets. In addition, a trust cannot withhold conditional payment if the condition is impossible to achieve, such as "the beneficiary can receive benefits once she assures there is peace in the world." A non-charitable trust cannot violate the Rule Against Perpetuities (in effect in most states). A non-charitable trust must have a definitive starting date and a determinable ending date. It cannot survive forever, unless the beneficiaries are charities. (This rule is not true in all states. Some states allow trusts to exist forever, referred to as Dynasty Trusts.) V. Living/Intervivos Trusts v. Testamentary Trusts A Living Trust or Intervivos Trust is a trust that is established and operated during the lifetime of the grantor. The grantor can put some or all of his assets into the trust. Normally a grantor will exercise some control over the trust. Most Living Trusts will have the same person as the grantor and the trustee. These Living Trusts are commonly referred to as Grantor Trusts. Most are revocable. It is important to remember that a Grantor Trust is still a separate legal entity from the grantor who creates it, even though the grantor is also the trustee. A Testamentary Trust is one that is established upon the death of the grantor. The grantor s estate assets are used to fund the trust. Usually the provisions for the trust will be contained in the Grantor s will (pour over will) or might pour over from another Trust. From a third party s standpoint, whether a trust is a living trust or a testamentary trust isn t important. What is important is whether it is revocable or irrevocable. VI. Transacting Business With Financial Institutions During the past few decades, financial institutions have seen a 2016, Terri D. Thomas 5

6 tremendous increase in the creation of Revocable Trusts. Customers are constantly asking to change the ownership of accounts from an individual capacity into the name of a Revocable Living Trust. As a result, financial institutions have had to contend with numerous questions on how to properly document accounts and lending relationships. VII. Uniform Trust Code (UTC) The Uniform Trust Code has been adopted by many states. Below is a listing of states that have adopted the code. While there may be minor differences state-to-state, the key provisions from a financial institution s perspective will be almost identical. States adopting the UTC (as of September 2015) are: Alabama Arizona Arkansas District of Columbia Florida Kansas Kentucky Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska New Hampshire New Mexico North Carolina North Dakota Ohio Oregon Pennsylvania South Carolina Tennessee Utah Vermont Virginia West Virginia Wisconsin Wyoming Introduced: New Jersey and Illinois (2016) The Code defines the powers and limitations of trustees when acting on behalf of the trust. The act provides that the relationship between the trustee and the trust is fiduciary in nature, and that the trustee can do most acts without court authorization, but must perform every act in a manner which a prudent person would use in the management of his own affairs. Additionally, the law gives a laundry list of automatic trustee powers that can be exercised, unless otherwise restricted by the trust agreement. These powers include transactions such as opening new accounts, investing assets, mortgaging property or borrowing money. The Uniform Trust Code provides that third persons are protected from liability in dealing with a trustee who is exercising these powers, unless the financial institution has knowledge that the trustee is exceeding or improperly exercising the same. a. Knowledge A financial institution will be deemed to have knowledge of a trustee s improprieties or of other facts when an employee having 2016, Terri D. Thomas 6

7 responsibility to act for the trust has the information, or would have had the information if the financial institution exercised reasonable diligence (following reasonable routines of communication). b. Certification of Trust Under the UTC, a financial institution may choose to obtain a Certification of Trust to document the existence of a trust and the powers to be exercised by the trustee (a sample Certification of Trust form is attached). In this document, the trustee acknowledges the following: (1) That the trust exists and the date the trust instrument was executed; (2) The identity of the settlor; (3] The identity and address of the currently acting trustee; (4) The powers of the trustee; (5) The revocability or irrevocability of the trust and the identity of any person holding a power to revoke the trust; (6] The authority of cotrustees to sign or otherwise authenticate and whether all or less than all is required in order to exercise powers of the trustee; (7) The trust's taxpayer identification number; and (8) The manner of taking title to trust property. A certification of trust may be signed or otherwise authenticated by the trustee. It must state that the trust has not been revoked, modified, or amended in any manner that would cause the representations contained in the certification of trust to be incorrect. A certification of trust need not contain the dispositive terms of a trust. A recipient of a certification of trust may require the trustee to furnish copies of those excerpts from the original trust instrument and later amendments which designate the trustee and confer upon the trustee the power to act in the pending transaction. A person who acts in reliance upon a certification of trust without knowledge that the representations contained therein are incorrect is not liable to any person for so acting and may assume without inquiry the existence of the facts contained in the certification. Knowledge of the terms of the trust may 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 certification. 2016, Terri D. Thomas 7

8 A person who in good faith enters into a transaction in reliance upon a certification of trust may enforce the transaction against the trust property as if the representations contained in the certification were correct. A person making a demand for the trust instrument in addition to a certification of trust or excerpts is liable for damages if the court determines that the person did not act in good faith in demanding the trust instrument. The Uniform Trust Code provides that a financial institution can inspect a copy of the trust instrument in lieu of taking a Certification. In most cases, this would not be in the financial institution s best interests. There are only limited occasions when a financial institution might need to review the agreement (see Loan Documentation and Successor Trustees below). While this statute would appear to provide a financial institution with full protection, there are some questions which are raised by the wording. For instance, does the financial institution have a duty to properly identify a person purportedly acting as the trustee? If a financial institution chooses to review a full copy of the trust agreement, does it result in the financial institution not being able to rely upon a Certification at a later time? A financial institution that asks too many questions of the trustee runs the risk of affirmatively assuming liability. However, a financial institution asking no questions runs a similar risk of being negligent in its duties. c. Authorized Signers The Uniform Trust Code states that a trustee has the power to delegate certain trustee functions to third parties. This language means that a trustee will have the power to add authorized signers to accounts who assist the trustee in administering his/her powers. This is different from the powers given to trustees under the Uniform Trustee Powers Act (see below). VIII. Uniform Trustees Powers Act Most states which have not adopted the Uniform Trust Code have at least some parts of the Uniform Trustees Powers Act (UTPA) in effect. Like the Uniform Trust Code, the UTPA provides some basic laws with respect to the management of trusts. In particular, the law provides a list of powers (similar to those found in the Trust Code), that can automatically be exercised by a trustee unless the trust agreement states otherwise. These powers include the power to deposit, withdraw, borrow, pledge and invest (anything one could possibly do at a financial institution). 2016, Terri D. Thomas 8

9 a. Certification of Trust Not Specifically Authorized Unlike the Uniform Trust Code, though, the UTPA is not clear as to whether a financial institution can accept a certification of trust form when doing business with a trustee. While the Act does not prohibit use of it, it does not specifically authorize it either. If a financial institution chooses to use a certification form to document the trust entity, it may want to have the grantor(s) of the trust sign the certification, confirming the trustee s powers, rather than relying solely on the representations of the trustee. In a typical revocable living trust situation, there is very little risk to a financial institution accepting a properly prepared certification signed by the grantor since the grantor has the authority to create and amend the trust, as well as determine what powers are to be given to the trustee. (Note, though, that some states have specifically authorized the use of a Certification of Trust, even though the state has not formally adopted the Uniform Trust Code). b. Authorized Signers Another difference between the Uniform Trust Code and the UTPA is that the UTPA is not as clear about whether a trustee has the power to appoint/designate an authorized signer on a deposit account. Therefore, in states using the UTPA a financial institution will normally not want the trustee adding additional signers to an account if the trust document does not specifically permit the activity. (Remember, though, that most trusts are revocable. Therefore, the grantor should be able to amend the trust to give such power to the trustee if required.) IX. Deposit Accounts Regardless of the trust laws in place, all states are going to give a trustee the power to manage property in the trust name. This power is going to cover the basic account transactions performed at a financial institution. a. Documenting the Account Frequently, a trustee or grantor requests opening a deposit account in a trust name. When doing this the financial institution should consider documenting the existence of the trust by having the trustee (UTC states) or grantor (all other states) complete a Certification of Trust. The Certification will allow the financial institution to confirm that the information is accurate without placing it in the position of having access to the entire trust 2016, Terri D. Thomas 9

10 document. As an alternative, a financial institution can take a copy of the front page of the trust (showing the legal name and trustee), the signature page of the trust and the page describing the trustee s power to transact business on the account. Using this method of documenting the trust is not the preferred method in the states recognizing the validity of the Certification form. Another common deposit request is changing the legal ownership of an account from individual ownership to trust ownership. As long as the Trustee can provide evidence that the ownership should be changed (this might occur if the trust agreement states that the deposit account is to be owned by the trust, or perhaps the grantor executed a power of attorney giving an attorney in fact the power to transfer assets into and out of the trust) then the account ownership can be changed (however, a trust certification form, by itself, will not give the trustee the authority to transfer property not owned by the trust into the trust). The most common titling of a Revocable Trust account is: John Doe (or Big National Bank), Trustee of The John Doe Living Trust under trust agreement dated June 1, 1994 (using the grantor s Social Security Number if the grantor is living and will be reporting interest payments on his personal tax return). For all other regular valid trusts the account should be titled: The John Doe Trust under the trust agreement dated June 1, 1994, Jane Doe Trustee (using a separate trust Tax Identification Number, rather than a Social Security Number). Customer Identification Procedure laws under the Bank Secrecy Act do not require the financial institution to "CIP" the trustee. The financial institution must only "CIP" the trust entity itself under the law (however, the financial institution s CIP policy may require CIP to be performed on the trustee). If the financial institution suspects a problem, the transaction should not be completed and legal counsel should be consulted. If the financial institution goes forward in completing the request without legal counsel, it may run the risk of being deemed to have knowledge of the trustee s possible wrongful acts. b. Blank Instruments The other problem commonly confronted by the financial institution is that the customer sometimes knows less about the trust document than the financial institution. Unfortunately, some trust agreements (especially revocable living trusts) contain blanks which have never been completed by either the attorney drafting the document or the customer/grantor. If the trust is a revocable trust 2016, Terri D. Thomas 10

11 then customer/grantor should be able to amend the terms, therefore, the customer can fill in any remaining blanks, or even change terms with which he is not comfortable. However, if a customer asks the financial institution for advice on completing the document, he should be referred to his attorney. Additionally, the financial institution should not take responsibility for completing the Certification of Trust on behalf of the trustee. If there are questions regarding how the form should be completed, the trustee should be advised to contact the attorney (or other party) who drafted the trust instrument. c. Transferring of Accounts into Trust It is important to note that the Uniform Trust Code should protect a third party from liability if the trustee wrongfully assumes control over the grantor s property. Be aware, though that a trustee will not normally have the power to transfer the grantor s individual property into a trust without specific permission from the grantor (which could be from the terms of the trust or a separate power of attorney executed by the grantor). X. Loan Documentation Loans made to trusts are typically for longer periods of time in comparison to loans made to decedent s estates. Unlike the estate, which has the goal of transferring the business interest to heir(s)- at-law, the trust is frequently the long-term operator of the business concern. As a result, a financial institution will want to look at the viability of the trust as a borrower no differently than when it looks at any other borrower. When loaning money to a revocable trust, and the grantor is still alive, holding the power to revoke, a financial institution should take comfort in the fact that common law does not permit the grantor to avoid paying the loan by moving property back and forth between the trust and personal ownership, or by creating/terminating the trust. A grantor who intentionally attempts to evade repayment of the loan will be liable for fraud under the laws of most states. When loaning money to an irrevocable trust (typically when the grantor is not the trustee, such as in decedent situations), the financial institution should remember that the trust is a free-standing legal entity with the full power to borrow money and pledge trust assets for those monies loaned to the trust, unless the trust document specifically limits or removes those powers. The trust alone will be liable for repayment of the debt, unless another party guaranties repayment. 2016, Terri D. Thomas 11

12 To document a loan to the decedent s trust, a financial institution should: Examine the trust instrument to confirm the trustee has the power to borrow money and pledge assets to secure repayment of the debt; or If permitted by your state s trust laws, obtain a certification of trust form in which the trustee provides an affidavit as to the unrestricted powers to borrower and pledge; or Obtain an attorney s opinion that the trustee has the unrestricted power to borrow money and pledge assets. Note: While common law generally considers a trust to be a legal entity (no different from other legal entities, like corporations and partnerships), effective August 1, 2015, a trust that is established for estate or tax planning purposes will be treated as a consumer for purposes of the Truth in Lending Act (CFPB Regulation B) and the Real Estate Settlement Procedures Act (CFPB Regulation X). XI. Co-trustees A trust can provide for co-trustees. If there are two trustees, it should be presumed by the financial institution that the trustees have to act jointly, unless the trust agreement (or the Certification of Trust completed by the trustees) specifically states that the co-trustees can act individually. This is because neither the UTC nor the UTPA indicate whether it takes both or any one of the trustees to act when there are two trustees. If there are more than two trustees, then most states require a majority of the trustees must complete requested transactions, unless the document (or Certification) gives "joint and several" powers to each of the trustees. If a Revocable Living Trust agreement does not permit the trustees to act individually, the grantor can amend the trust to permit individual action. This general rule tends to be true regardless of whether the state has adopted the Uniform Trust Code or the Uniform Trustees Powers Act. XII. Successor Trustees When dealing with a trust transaction (either deposit or loan), the financial institution may find itself in the position of needing to identify a successor trustee (even if the Certification of Trust does specify the identity and terms for when a successor can replace the trustee, the financial institution may need to verify the information in case the financial institution knows the trust has been subsequently amended). A successor trustee is the party who will replace the trustee upon the initial trustee s removal, resignation, incapacity or death. Most often, trust agreements are very specific as to when and how a successor trustee is to be appointed. For instance, the trust agreement may state that it takes two doctors 2016, Terri D. Thomas 12

13 certifications of incompetence before the trustee will be removed and a successor trustee appointed. In most cases, the successor trustee does not need to be approved by the court and, therefore, in this example the financial institution might find itself in the unfortunate position of determining the facts. The financial institution is best advised to not get involved in the successor process, and, instead, do nothing more than ask to see copies of the two letters certifying incompetence, or if the state permits it, obtain other evidence of compliance. If the trustee is no longer able or willing to serve, and the trust agreement does not designate a successor, there is no guessing. Instead, in most states a court will have to designate a successor. XIII. Powers of Attorney/Authorized Signers A power of attorney is one of the most confusing and dangerous documents accepted by a financial institution. Therefore, when an attempt is made to use a power of attorney in conjunction with a trust, the situation becomes extremely uncertain (see Power of Attorney materials for more information about Power of Attorney documents). The problem often experienced by the financial institution is that the attorney in fact wants to use the power of attorney executed by the grantor to exercise the trustee s powers over assets owned by a trust. However, a power of attorney cannot typically be used in this situation because the grantor and trustee of the trust are two separate and distinct legal entities, even when the grantor is also the trustee. A principal who executes a power of attorney and is also a grantor of a trust, who gives trust powers to an attorney in fact, is typically only giving the attorney in fact the power to exercise control over things the individual grantor could do. Since the grantor cannot exercise control over property held in trust (because the trustee is the party legally vested with the duty) the attorney in fact will also be restricted. This is a very difficult concept to most customers and it takes time and patience to adequately explain the problem. Additionally, some attorneys who draft these documents do not understand the concept and are unable to assist the financial institution in explaining the situation to their clients. Furthermore, under many states general power of attorney laws, an attorney in fact is not permitted to use a Durable Power of Attorney to modify, amend or revoke a Principal s trust unless the power of attorney document specifically gives the power to the attorney in fact. In other words, in many states, the attorney in fact will not be able to exercise the grantor's rights over a revocable trust unless the power of attorney agreement specifically says so. Legal advice should be sought if this type of question arises. Another problem with the power of attorney occurs when the trustee wants to add an authorized signer (which is a limited power of attorney) to a 2016, Terri D. Thomas 13

14 deposit account held in the trust name. The Uniform Trustees Powers Act would not permit this unless the Trust Agreement gave the power (see Uniform Trustees Powers Act above). The Uniform Trust Code permits a trustee to delegate his power and therefore, one can assume the trustee has the power to add an authorized signer to a deposit account unless the trust agreement says otherwise. XIV. Payable on Death Accounts In most states there is no language which prohibits a trust being named as a payable on death (POD) account beneficiary (ex: John Doe POD to the John Doe Living Trust, Mary Smith, successor trustee). However, in some states may require the trustee to be identified in the POD agreement (may be the successor trustee if it is a grantor trust). If a revocable trust is named as a POD beneficiary, FDIC insurance will now insure the account as if the beneficiaries of the trust were directly named as POD beneficiaries. Note, though, that an account in the trust name should NEVER have a POD designation on it (ex: John Doe Living Trust POD to Jane Smith). Trusts don t die; therefore, the POD designation will never be effective. XV. Joint Tenancy It is unclear whether a trust can co-own a Joint Tenancy account. Generally, there is no rule specifically prohibiting this form of ownership for trusts. However, general trust principles place a responsibility on a trustee to not permit trust assets to become commingled with property belonging to others. Additionally, it is the responsibility of the trustee to maintain the value of trust property. By placing a trust account into joint ownership the trustee is running the risk of losing control over the property. The account balance can be reduced (or the account closed) by the co-tenant without the trustee s permission or knowledge. This could make the trustee liable for the loss of the property (or its value). Therefore, while a financial institution may not have any risk for creating an account in this titling, a trustee who permits the funds to be placed in co-tenancy account may find himself liable to a grantor or beneficiary for negligence in protecting the property. XVI. Safe Deposit Box Under general trust principles, a safe deposit box can be titled in a trust name, with the trustee having access to the contents. In most cases, the financial institution should encourage this form of ownership for the 2016, Terri D. Thomas 14

15 box. This is because trusts don t die. So, while the financial institution might have to do a will search when a natural person-boxholder dies, the financial institution isn t in the position of having to do a will search when the trust is the owner and the grantor dies (although some states might require the access to the box be frozen in order to determine if there were tax or other liabilities owed by the grantor). If a trustee is the party who can access a safe deposit box upon the grantor s death because the trust owns the box, then upon the death of the grantor, the trustee (or the successor trustee) can still enter the box because the trust doesn t die with the grantor. It should be noted, though, that the contents of the box will not be owned by the trust just by changing the box titling. The trust document must specifically state that the contents of the box are to be placed in the trust name for the trust to own the contents. This is an issue of concern for grantors and trustees, not for the financial institutions leasing the box. XVII. Depositing Checks Payable to the Trust into the Trustee s Personal Account Frequently, a depositary bank will be asked to allow the trustee of a trust to endorse a check payable to the trust and deposit it into the trustee s personal account. While it would seem that this would be a power that could be exercised by the trustee, the reality is that this can create a great deal of risk for the depositary bank. Under the Notice of Fiduciary Breach rule of the Uniform Commercial Code (found at UCC 3-307) a depositary bank is on notice of a potential breach of an agent s fiduciary duty if the depositary bank allows a check payable to the principal (in the example above, the trust) to be deposited or credited to another party, including the fiduciary agent (in the example above, the trustee). This rule states that because the depositary bank is on notice of the potential breach of the trustee s fiduciary duty, it is liable to the beneficiaries of the trust if ultimately the trustee is embezzling from the trust. This is the same rule that creates liability for a depositary bank if it allows the officer of a corporation to deposit a check payable to the corporation into the officer s personal account. Furthermore, this rule states that documents such as the Certification of Trust form do not necessarily alleviate the depositary bank s liability. Therefore, it is best for a depositary bank to require checks payable to a trust to be deposited or credited to the trust. Then if the grantor/trustee wants to transfer the funds out of the trust account to be used for other purposes, it will no longer be the depositary bank s concern. 2016, Terri D. Thomas 15

16 XVIII. Multiple beneficiaries and FDIC Insurance Trusts can have multiple beneficiaries. The terms of the trust will dictate how the trust assets are to be divided. It is the responsibility of the trustee, not the financial institution, to determine how the funds are to be distributed. It is for this reason that the beneficiaries should not be listed on the titling of a revocable living trust account. If the financial institution fails, the FDIC/NCUA will contact the trustee of the revocable trust and confirm the identity of the beneficiaries. Revocable trusts will have $250,000 per beneficiary coverage, as long as the beneficiary is a natural person, charity or not-for-profit entity. The FDIC/NCUA s irrevocable trust documentation rules require that either the financial institution or the trustee have documentation of the beneficiaries. Since it is required that a trustee of a trust know the identity of the beneficiaries, it should be safe for a financial institution to rely on the trustee to maintain beneficiary documentation. Financial institutions should avoid giving advice on whether an irrevocable trust is fully FDIC insured due to the complexities of the coverage (regarding contingent beneficiaries). The trust agreement may be submitted to the FDIC for a formal opinion. 2016, Terri D. Thomas 16

17 CERTIFICATION OF TRUST (UNDER THE UNIFORM TRUST CODE) The undersigned, constituting all of the trustees of the (insert name of trust and legal address of trust ( Trust ), being first duly sworn, depose and say: a. EXISTENCE OF TRUST. The trust is in existence and consists of (choose one): SAMPLE FORM FOR DISCUSSION PURPOSES ONLY A living (intervivos) trust which was executed on (insert date of intervivos trust); or A testamentary trust, with the date of death of the decedent being (insert date of death of decedent). b. IDENTITY OF GRANTOR, SETTLOR OR TESTATOR. The Grantor/Settlor/Testator of the trust is (insert name of person who created trust). c. CURRENTLY-ACTING TRUSTEE(S). (Insert name of trustee(s) is/are the currently-acting trustee(s) of the trust. d. POWERS OF TRUSTEE. Each Trustee hereby certifies that it has all the powers granted to trustees under the Uniform Trust Code adopted by the state of without limitation. e. RESTRICTIONS IMPOSED UPON TRUSTEE. Following (or attached to this CERTIFICATION OF TRUST) is a list of restrictions imposed upon the trustee of the trust dealing with the assets of the trust. NO RESTRICTIONS f. A. NAME OF SUCCESSOR TRUSTEE(S). (insert name of trustee(s)) is/are the successor trustee(s) of the trust. B. METHOD OF CHOOSING SUCCESSOR TRUSTEE(S). Successor trustee(s) of trust are chosen as follows: (Have the trustee(s) choose either option (A) or, if (B), complete this portion of the CERTIFICATION OF TRUST) g. REVOCABILITY/IRREVOCABILITY OF TRUST. The trust is: (Choose one) i. Revocable ii. Irrevocable and (insert name(s) of any person with the power to revoke the trust) holds the power to revoke said trust. h. EXERCISE OF POWERS BY TRUSTEE(S). (Choose one) i.all or more than one of the currently-acting trustees must act to exercise identified powers of the trustee. ii. Any one of the currently-acting trustees may act to exercise identified powers of the trustee. i. IDENTIFYING NUMBER. The tax identification number of the trust is:. j. BENEFICIARIES. Following is a list of beneficiaries of the trust and their relationship to the Grantor/Settler/Testator (for Irrevocable Trusts-FDIC/NCUA Insurance Requirements). Name of Beneficiary Relationship. 2016, Terri D. Thomas 17

18 k. ESTABLISHMENT OF TRUST. The trust was established in the State of (insert state of establishment). l. TITLE TO TRUST ASSETS. Title to assets of the trust is to be taken in the following form: (Insert the style in which the assets are to be titled, such as John Doe, Trustee of the John Doe Revocable Trust and trust s legal address). SAMPLE FORM FOR DISCUSSION PURPOSES ONLY m. ACKNOWLEDGMENT AND INDEMNIFICATION. The trust has not been revoked, modified or amended to make any representations in this CERTIFICATION OF TRUST incorrect and the trustee(s) signing this document is/are the corporate trustee or one or more of the acting trustees. The undersigned hereby certifies to the financial institution that the information is correct and that the financial institution may rely on the foregoing information in opening any account, deposit or other banking relationship with such trust until receipt of written notice of any change of the foregoing from the trustee(s). The undersigned acknowledges that the financial institution has not received a copy of the Trust Agreement and the financial institution shall be entitled to act on the instructions of the trustee(s) with respect to the account. Trustee hereby ratifies and accepts any and all transactions performed by the grantor or other owner of said account arising prior to the effective date hereof, including any pre-authorizations given for automatic drafts or debits. If the financial institution has actual notice of any dispute with respect to the trust, or with respect to the powers of the trustee(s) to act thereunder, the financial institution may, but shall not be required to: (a) freeze the account until the dispute is settled, or (b) interplead the funds in the account in an appropriate court and be reimbursed from the account for the financial institution s expenses, including attorneys fees. The undersigned will indemnify the financial institution from costs (including reasonable attorneys fees) incurred as a result of reliance by the financial institution on this Certification or any instructions from the trustee(s), any authorized agent appointed by the trustee, or any successor trustee. Trustee Trustee State of ) ) ss: County of ) Subscribed and sworn to before me, a Notary Public, on this day of,. My commission expires: Notary Public 2016, Terri D. Thomas 18

19 Revocable Living Trust (including Grantor Trust) Description: an agreement in which a grantor gives property to a trustee to hold on behalf of a beneficiary. Trustee controls all business of the trust. Trust is revocable and can be modified, amended or terminated by the grantor or another designated person. Trust property can be removed by the grantor or another designated person. Title: The John Doe Living Trust dated , John Doe, Trustee or John Doe, Trustee of the John Doe Living Trust dated Ownership: Beneficial ownership vested in beneficiary(ies) of trust. CIP: Name Address TIN: Trust EIN or grantor's SSN (if grantor is alive and going to report the interest earned on his/her personal tax return). Certification of Trust or copies of certain pages of the trust document showing legal name, trustees, trustee s powers and grantor s signature. Other Non-documentary verification TIN for tax reporting: Trust EIN or grantor's SSN FDIC Insurance: Living Trust (including grantor trusts): $250,000 per qualifying beneficiary (natural person, not-for-profit or charity). Signs: John Doe Living Trust dated By: John Doe, Trustee 2016, Terri D. Thomas 19

20 Irrevocable Trust Description: an agreement in which a grantor gives property to a trustee to hold on behalf of a beneficiary. Trustee controls all business of the trust. Trust cannot be terminated, modified or amended by the grantor once created. Usually used for tax purposes. Title: The Doe Family Trust dated , First City Bank, Trustee Ownership: Beneficial ownership vested in beneficiary(ies) of trust. CIP: Name of Trust Address of Trustee TIN: Trust EIN Certification of Trust or copies of certain pages of the trust document showing legal name, trustees, trustee s powers and grantor s signature. Other Non-documentary verification TIN for tax reporting: Trust EIN (although the IRS can give some types of apparently irrevocable trusts the ability to use the grantor s SSN. This is the case with an intentionally defective irrevocable trust. ) FDIC Insurance: $250,000 per beneficiary as long as trust meets certain tests. DO NOT PROVIDE SPECIFIC ADVICE ON WHETHER THE TRUST IS FULLY INSURED. The trust agreement can be submitted to the FDIC for an opinion. Signs: Doe Family Trust dated By: Mary Smith, Vice President First City Bank, Trustee 2016, Terri D. Thomas 20