By Matthew M. Young, Attorney
As general counsel for many credit unions, among the most common inquiry I address relates to the law of trusts. Trusts law is a complex area of the law and for those credit unions navigating these waters, the potential for significant legal exposure can result through errors in interpretation of the law or acting inconsistently with certain trust provisions.
Fortunately for credit unions in most states, states’ adoption of the Uniform Trust Code (UTC) has simplified the area of trust law for financial institutions. No longer do you need to obtain and review significant trust documents. In fact, your credit union should not accept a full trust document when opening trust accounts and providing loans to trusts. Instead, credit unions can and should rely upon a certification of trust; a significantly redacted and more easily interpreted document highlighting key trust terms. In fact, a properly drafted certification of trust can easily fit into one or two pages. The benefit to accepting a certification of trust, in lieu of an entire trust document, is that anyone who, in good faith, accepts a certification of trust can rely upon that certification and shall not be liable for otherwise conflicting facts in the trust.
In order to accept a certification of trust, it must contain the following terms:
- A statement that the trust exists and the date the trust instrument was executed;
- The identity of the settlor (aka grantor/trustor);
- The identity and address of the currently acting trustee;
- The powers of the trustee;
- The revocability or irrevocability of the trust and the identity of any person holding a power to revoke the trust;
- The authority of co-trustees to sign or otherwise authenticate and whether all or less than all are required in order to exercise powers of the trustee.
- A trustee’s execution or authentication of the certification of trust;
- A certification of trust shall state that the trust has not been revoked, modified, or amended in any manner that would cause the representations contained in the certification of trust to be incorrect.
Each of the elements above must be included for the certification to be valid. By accepting a certification of trust, as outlined above, credit unions not only simplify interpretation relevant to trust law, but minimize legal exposure in doing so.