First, we recommend obtaining a Certification of Trust from the customer to verify that your customer is a trustee of the trust with authorization to manage the trust’s bank account. Under the Illinois Trust Code, a bank cannot be held liable for acting in reliance upon a certification of trust unless the bank has actual knowledge that the certification’s representations are incorrect or acts in reliance upon the certification in bad faith.

But even if your customer is able to provide a Certification of Trust, your bank will not be protected from liability if it knows your customer will mishandle the trust property—and in this case, your bank already has knowledge that your customer intends to use the trust property as his personal property, which may violate his fiduciary duties to his child as the trust beneficiary. Illinois case law recognizes a cause of action against banks that have actual knowledge of a fiduciary’s misappropriation of funds, and under the Uniform Commercial Code a bank can be held liable for making payments with respect to instruments if it knows the money will be used for the personal benefit of the fiduciary. Additionally, the Fiduciary Obligations Act does not protect banks that allow fiduciaries to draw checks from a trust account when it has actual knowledge that the fiduciary is committing a breach of his fiduciary obligations in drawing the checks.

If your bank intends to continue serving this customer, the customer may wish to use an alternative method for shielding the funds that would not risk breaching fiduciary obligations, such as by establishing a deposit account owned by the minor as allowed under the Illinois Banking Act or by establishing a joint account between your customer and the minor.

For resources related to our guidance, please see:

• Illinois Trust Code, 760 ILCS 3/1013(a) (“Instead of furnishing a copy of the trust instrument to a person other than a beneficiary, the trustee may furnish to the person a certification of trust. . . .”)

• Illinois Trust Code, 760 ILCS 3/1013(e)  (“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 that designate the trustee and confer upon the trustee the power to act in the pending transaction.”)

• Illinois Trust Code, 760 ILCS 3/1013(f) (“A person who acts in reliance upon a certification of trust without actual 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. . . .”)

• Illinois Trust Code, 760 ILCS 3/1013(g) (“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.”)

• Appley v. West, 832 F.2d 1021, 1030 (7th Cir. 1987) (“The case law indicates that Illinois recognizes a cause of action against a bank that has actual knowledge of a fiduciary’s misappropriation of funds or that has knowledge of facts that render its failure to inquire bad faith.”)

• UCC, 810 ILCS 5/3-307(b) (“If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply: . . . (2) In the case of an instrument payable to the represented person or the fiduciary, as such, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.”)

• UCC, 810 ILCS 5/3-420(a) (“The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.”)

• Fiduciary Obligations Act, 760 ILCS 65/8 (“If a check is drawn upon the account of his principal in a bank by a fiduciary who is empowered to draw checks upon his principal’s account, the bank is authorized to pay such check without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing such check, or with knowledge of such facts that its action in paying the check amounts to bad faith. . . .”)

• Beedie v. Associated Bank Ill., N.A., 2011 WL 2460959 (C.D. Ill. 2011) (“The Illinois Courts have defined ‘actual knowledge’ as an ‘awareness at the moment of the transaction that its fiduciary is defrauding the principal’ and as ‘having express factual information that funds are being used for private purposes that violate the fiduciary relationship.’”)

• Illinois Banking Act, 205 ILCS 5/45.1 (“A state bank may accept deposits made by a minor and may open an account in the name of such minor and the rules and regulations of such bank with respect to each such deposit and account shall be as binding upon such minor as if such minor were of full age and legal capacity. The receipt, acquittance or order of payment of such minor on such account or deposit or any part thereof shall be as binding upon such minor as if such minor were of full age and legal capacity.”)