We understand the statutory trusts are subject to the beneficial ownership provisions of FinCEN’s Customer Due Diligence Rule. How can we identify when a trust is a statutory trust? Will it be apparent from the trust documents?

We recommend incorporating a question into your account opening questionnaires and customer due diligence (CDD) procedures to require your customers to identify whether they are a statutory trust (also called a “business trust”).

Statutory trusts are a special type of entity that can engage in business or other activities. Unlike ordinary trusts, statutory trusts are formed by filing a certificate of trust or other filing with a public official (typically the Secretary of State). With that filing, a statutory trust has a separate existence from its trustees and beneficial owners. Illinois law does not provide for statutory trusts, but statutory trusts can be formed in dozens of other states, with Delaware statutory trusts being the most prevalent.

Your statutory trust customers should be able to identify themselves during the account opening process if prompted. Additionally, your customer identification program (CIP) procedures may already require your bank to collect the certificate of trust or other publicly filed documents when verifying a statutory trust customer’s identity on account opening.

For resources related to our guidance, please see:

31 CFR 1010.230(e) (Effective May 18, 2018) (“Legal entity customer means a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”)

FinCEN Frequently Asked Questions (FAQs), FIN-2016-G003 (July 19, 2016) (“Q: Are trusts included in the definition of legal entity customer? A: No. The definition of legal entity customers only includes statutory trusts created by a filing with the Secretary of State or similar office. Otherwise, it does not include trusts. . . .”)

FinCEN Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29412 (May 11, 2016) (“The definition would also not include trusts (other than statutory trusts created by a filing with a Secretary of State or similar office). . . .”)

Uniform Law Commission, Uniform Statutory Trust Entity Act Prefatory Note (March 31, 2010) (“Like a corporation, limited liability company, and limited partnership, but unlike a common-law trust, a statutory trust is a juridical entity that may undertake transactions in its own name, separate from that of the trustee and the beneficial owners. Like those entities, but unlike a common-law trust, a statutory trust is formed when a public official files a creation document in the public record.”)

Uniform Law Commission, Uniform Statutory Trust Entity Act Prefatory Note (March 31, 2010) (“To address the legal uncertainty surrounding the common-law business trust, at least thirty states have enacted legislation that validates the trust as a permissible form of business organization.”)

Uniform Law Commission, Uniform Statutory Trust Entity Act Prefatory Note (March 31, 2010) (“Since the 1980s, statutory trust entities have thrived in a variety of niches, particularly in the organization of mutual funds and in the practice of asset securitization. . . . The statutory trust has also come to be used in certain tax-advantaged real estate transactions.”)

Uniform Law Commission, Uniform Statutory Trust Entity Act Prefatory Note (March 31, 2010) (“In choosing to take the Delaware Statutory Trust Act as its starting point, the drafting committee was strongly influenced by state-level data on statutory trust usage over the last few years. These data, first collected by the reporter and then later updated by the International Association of Commercial Administrators, indicate that the Delaware Statutory Trust Act dominates the field, both in new statutory trust formations and in the aggregate number of statutory trusts.”)

FinCEN CIP Rules, 31 CFR 1020.220(a)(2)(ii)(A)(2) (“Verification through documents. For a bank relying on documents, the CIP must contain procedures that set forth the documents that the bank will use. These documents may include: . . . (2) For a person other than an individual (such as a corporation, partnership, or trust), documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument.”)