Just because a bank requests information, that does not necessarily mean the bank is entitled to receive such information.
By way of introduction, I spent several years working directly for some of the world’s largest banks while I was employed at a large firm in downtown Chicago. Since then, I have continued to interact with banks and bank employees on a regular basis in many different contexts, usually now on behalf of customers of banks who are also my clients. Sometimes this is when my client is seeking a loan from a bank or funding their bank accounts into their newly established (or newly updated) trusts.
When a customer tells their bank that they have a trust and that they want to “connect” their bank accounts with the trust, it is customary for the bank employee to tell the customer that in order to honor such a request, the customer must provide the bank with copies of the entire trust agreement and related estate planning papers. While that may sound like a reasonable response from the bank, the reality is that per Utah Code 75-7-1013 (Certification of trust), the client is not required to give the entire trust agreement to the bank.
Let’s step back here for a moment and remember that privacy is one of the main reasons people use a trust for their estate planning (vs. opting for a Will-based plan which will eventually become part of the public record when the Will is submitted to probate court). Therefore, there is something slightly contradictory (and even a little offensive) about being told by a bank that they must produce the entire trust agreement for the bank’s records. Trust agreements almost always contain very private information, including intimate details about family members. Yes, trust agreements are private documents.
Utah Code 75-7-1013 is intended to honor and preserve those desires for privacy and the ability to keep family and other personal matters within the “circle of trust” (pun intended). As statutes go, it is reasonably well-written and straightforward to read and comprehend. Among other things, the law provides that a summary of the terms of a trust (a/k/a Certificate or Certification of Trust) should contain:
- name and date of the trust;
- the identity of the settlor (a/k/a trustor, grantor or trust-maker);
- name and address of the current trustee;
- powers of the trustee in the pending transaction–i.e., if dealing with a bank, a statement that the trust authorizes the trustee to have control over bank accounts, etc.;
- whether or not the trust is revocable or irrevocable; and
- the manner in which trust assets should be designated.
It is important to note that “a certification of trust need not contain the dispositive terms of a trust.” In other words, to be a valid summary of a trust for banks and other third parties, the law requires the inclusion of certain details (mostly what is noted above), but it is not required that a Certification of Trust contain all of the trust details. Even if the bank really wants to know other details? Yes, even then.
The statute also contains protections and assurances for banks and other third parties that if they rely on a valid Certification of Trust, they are protected from any related claims or other liability. In other words, if a bank claims that they require the full copy of the trust agreement because of liability concerns, they are simply mistaken or do not understand Utah Code 75-7-1013.
(6) A person who acts in reliance upon a certification of trust without knowledge that the
representations contained in it are incorrect is not liable to any person for 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.
(7) 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.
Again, third parties are protected from any liability resulting from relying on a Certification of Trust that complies with the statute. So, why then do banks routinely tell clients that they must produce all trust agreement papers for the bank? Why indeed. I have a few responses to that query, some of which are more than a little cynical but based on a much personal experience dealing with such bank requests.
One reason why bank employees routinely request (sometimes even demand) the entire trust agreement is that they are told by their compliance personnel (i.e., in-house attorney and otherwise) that they are supposed to do this. In fact, this is the most frequent response given when I have conversations with bank employees on behalf of my clients. Usually, the person on the other end of the phone or e-mail or counter is merely doing their job, following the instructions and requirements they have been given. This is totally understandable and commendable work by a dutiful employee. So, we usually have to go up the “chain of command” to resolve the issue of the bank’s “required papers” instruction to employees. Eventually, when I can talk to the right person at the bank, remind them of the applicable statute and how it works, the list of “required papers” becomes much shorter. You see, the statute also has a bit of a bite in it to encourage reasonable requests and behavior by third parties:
(8) A person making a demand for the trust instrument in addition to a certification of trust or excerpts is liable for costs, expenses, attorney fees, and damages if the court determines that the person did not act in good faith in demanding the trust instrument.
Another reason why banks often tell customers they must provide the bank all trust papers is that banks are in a “regulated” business environment which does require the bank to gather a significant amount of personal data. Banks, therefore, are geared towards asking for just about everything they can get their hands on and then sifting through such information on their end to find what they actually need. I think the mindset is often that it is far better to request more and have a little too much (i.e., unnecessary data) than not to request enough and then be left without an important piece of information the bank needs–especially when the regulators come looking at bank records. In this same context, people who deal with banks are somewhat accustomed to banks asking for a LOT of information, on a regular basis. For example, have you tried applying for a loan lately? Just to open a bank account, the scope of requested information is quite remarkable (and not in a good way). Accordingly, it is often the case that people expect the bank is going to require lots and lots of very personal information and they usually don’t think much of it when the bank asks for copies of all estate planning papers.
The most cynical (me, being the cynical one) option for why this process plays out with banks and customers time and time again is that the folks at many banks are “banking” (pun intended) on the fact that you simply are not aware of Utah Code 75-7-1013. Just because the bank employee tells you he or she “needs” your trust agreement, that does not mean you are required to provide a copy. Under Utah law, you are not. But they are pretty sure you don’t know that, so they keep asking, and asking, and asking.
Why am I cynical about this process and the behind-the-scenes stuff at some banks? Because the following scenario has played out time and time and time again in the past several years:
I help a client set up their new revocable living trust. In that signing meeting, among the papers signed by the client is an instruction letter to their bank telling the bank all it needs to know about the trust, how to retitle the bank account, etc. I then send that letter to the bank, along with a copy of the Utah Code 75-7-1013-compliant certificate of trust. A few weeks later, someone at the bank calls my client and tells them to bring in all of client’s estate planning papers so that bank can make a copy for its records. I call and talk with bank employee about why the bank request is inappropriate and not in adherence to Utah law. Sometimes I am referred to someone else at the bank, but eventually, we always end up at the very same ending place–someone at the bank acknowledges the existence of Utah Code 75-7-1013 and also acknowledges that the bank does not REALLY need all of the trust papers. I may send a few other select pages to the bank on rare occasions, but never, never, never do we provide the bank with the entire trust agreement. Never.
I am clearly quite passionate about this topic. As stated earlier, I have gone through this same song and dance with banks time and time again. Further, I have played these “games” with the same banks on several occasions. I do my very best to warn the clients as they are setting up their new trusts what to expect from the banks and that they should neither be surprised by a request for the entire trust agreement nor should they honor that request.
Thankfully, we have made progress with many banks in the area. When I first started working with estate planning clients in Utah (after returning from Chicago), I had to confer with bank employees about 70% of the time before we could finish the trust funding process. Now, that happens only about 40% of the time. I am glad that word is getting out and banks are, by and large, behaving in a more reasonable and responsible manner more often.