Keeping Trust Documents

By: John B.C. Porter, Esquire

Until recently, if a member walked into a credit union in Ohio and wanted to open a trust account, the credit union, being properly advised by its legal counsel, required the member to provide the credit union with a copy of the trust instrument. The credit union needed a copy of the trust instrument because Ohio law did not provide a safe harbor for credit unions dealing with trustees. In other words, if the credit union did not know who the successor trustees were or what powers the trustee(s) possessed, Ohio law did not shield from liability credit unions that inadvertently or unknowingly allowed trustees to exceed the powers granted them under the trust, or worse yet, allowed a purported trustee to exercise dominion over the trust when said trustee was not yet or never would be the trustee of the trust.

Effective at the beginning of 2007, however, the Ohio legislature adopted provisions of the Uniform Trust Code (“UTC”) to govern the administration of trusts in the State of Ohio. One provision of the UTC arguably provides the safe harbor that Ohio law was previously lacking. Ohio Revised Code (“ORC”) § 5810.12. This provision states that a person who, in good faith, deals with a trustee without knowledge that the trustee is exceeding or improperly exercising the trustee’s powers is protected from liability “as if the trustee properly exercised the power.” ORC § 5810.12(A). The provision continues by stating that a person dealing, in good faith, with a trustee, need not even inquire into the extent of the trustee’s powers or the propriety of their exercise. ORC § 5810.12(B). Furthermore, a person who, in good faith, delivers assets to a trustee is not required to ensure their proper application. ORC § 5810.12(C). This provision even protects a person from liability who, in good faith, deals with a former trustee, without knowledge that the trusteeship terminated, as if the former trustee were still a trustee. ORC § 5810.12(D).

One of the official comments to this section states that a third party, acting in good faith, may assume that the trustee has the necessary power. Consequently, there is no need to request or examine a copy of the trust instrument. If, however, the third party requires assurance that the trustee has the necessary authority under the trust, said third party should require a certification of trust as provided in § 5810.13. This provision was enacted with the specific intent to negate the rule followed by some courts—that a third party is charged with constructive notice of the trust instrument and its contents.

Keep in mind; a prerequisite to this protection from liability is the credit union acting in good faith in dealing with the trustee. Unfortunately, what the UTC does not define is what constitutes “good faith.” If a member walks into the credit union and claims she is the trustee for the Quartermaine Revocable Family Trust on account with the credit union, is this enough? Obviously, the safest approach would be to require the trustee to provide the credit union with a certification of trust. A person acting in reliance upon a certification of trust, without knowledge that the representations contained in the certification 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. ORC § 5810.13(F). In fact, if the credit union demands the trust instrument in addition to a certification of trust, it may be liable for damages if a court determines that the credit union did not act in good faith in demanding the trust document! ORC § 5810.13(H).

With the adoption of the UTC in Ohio and its relevant provisions that shield credit unions acting in good faith from liability when dealing with trustees, the best practice is for credit unions to require purported trustees of trust accounts to furnish the credit union a certification of trust at account opening.  Requesting the actual trust instrument is no longer necessary, and in some cases may even expose the credit union to liability. The Ohio legislature’s adoption of the UTC now provides credit unions with a desperately needed shield from liability as well as greatly simplifying credit unions’ operations.

John B.C. Porter is an Associate in the Credit Union department of the Brooklyn Heights operations center. He can be reached at (216) 739-5003 or jporter@weltman.com.

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