Topic: Trusts
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Do we need to retain our trust department’s monthly account statements? If so, for how long? Our system is not capable of reproducing information found on account statements for the trust accounts, so the only source of past transactional and other information would be the account statements themselves. Currently, we retain these monthly statements electronically for seven years.
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We are unaware of any law or regulation that sets a required retention period for…
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We service student loans made by trusts for which our trust department serves as trustee. If the student borrowers meet certain conditions, such as finding employment in their field of study, then the loan is forgiven (it becomes a “scholarship”). If not, the student must pay back the loan to the trust. The loan terms are longer than a year, and they are unsecured. Is our bank considered a servicing agent for these loans? If so, what regulations apply? What disclosures are required?
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Do any of the trusts make more than twenty-five unsecured loans in a calendar year? If not, all of their student loans likely are exempt from Regulation Z. Regulation Z exempts creditors that make fewer than twenty-five unsecured loans annually, and its Official Interpretations treat these trusts as “separate entities” when counting their loans. But…
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Our trust department is planning to offer loans for post-secondary education funded by trust accounts. Is our bank now considered a servicing agent for these loans? If so, what regulations apply? What disclosures are required?
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These loans likely will be considered private education loans governed by Regulation Z. The term “private education loan” includes extensions of credit made for postsecondary education expenses made to consumers — and Regulation Z defines consumer credit to include credit extended to trusts for personal, family or household purposes. There are exclusions from the definition…
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We received a non-wage garnishment order naming both John and Jane Doe as judgment debtors. Their only account at our bank is a revocable living trust account (titled “The John and Jane Doe Living Trust”), for which they are both named as trustees. They created the trust and are its only two beneficiaries. The garnishment is not for child support obligations. Is the trust account subject to the garnishment order?
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Yes, we believe the trust account is subject to the garnishment order. Under Illinois law, a debtor’s interest in trust funds is subject to garnishment, provided that the trust was self-settled — that is, created by the debtor himself for his own benefit. In this case, you have indicated that the debtors established their trust…
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If our trust department uses an outside broker-dealer to execute the purchases and sales of securities for the trusts that we administer in our trust department, are we considered a “broker” for purposes of SEC registration? In our view, we are not a broker because we do not have any role in executing trades; we settle trades in client accounts, but it is the outside broker-dealer who executes the trades. Because we are not a “broker,” we are not concerned about the different bank exceptions.
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Yes, we believe that your bank could be considered a “broker” for purposes of the Securities Exchange Act of 1934, although it is very likely that your securities activities qualify for one or more of the many bank exceptions provided in the Act and Regulation R. The Act defines a broker as a “person engaged…
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The statutory certification of trust form does not require trustees to identify beneficiaries, but it would be helpful to know this information in the event that we cannot locate the successor trustee. Can we request the trustee to identify trust beneficiaries in addition to successor trustees? Is there any reason that we shouldn’t?
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While you may request information on a trust's beneficiaries, a trustee may hesitate to provide it, and absent a need to obtain this information “in good faith” (such as for conducting due diligence or to comply with a specific law), you may not require this information. In our view, a general concern that successor trustees…
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Do our insiders need to report personal trusts on our Regulation O form for insider loans? Or should we be concerned with reporting only business trusts?
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Yes, we recommend that your Regulation O reporting form cover personal trusts as well as business trusts. Regulation O’s definition of “related interest” includes trusts, “business or otherwise,” that are controlled by an insider. If an insider controls a trust as trustee, you would want the insider to report that information so that the bank…
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Our customer is the trustee of her trust. Her two sons are named as successor trustees. One son was granted power of attorney over her. He would like to amend his power of attorney document to give him authority to execute transactions on behalf of the trust. Is that permissible?
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Yes, the power of attorney document may be amended to expressly permit the son to exercise authority over the trust. Illinois law permits an agent with power of attorney to exercise all powers with respect to a trust that the principal could exercise if she was not disabled, except that the agent may not revoke…
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Does Regulation R apply to our bank? We have a trust department and use outside broker/dealers to effectuate purchases and sales of securities. We usually have fewer than 500 trades per year, qualifying us for the de minimis exception. But if we exceeded that threshold, would we be subject to Regulation R?
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Yes, your bank would be subject to Regulation R if it exceeds the transaction threshold under the de minimis exception, but it is possible that another exception will apply. The de minimis exception is just one of many exceptions from the definition of “broker” under the Securities Exchange Act of 1934 and Regulation R. If…
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Are there any Illinois laws related specifically to document retention as to trust or wealth management documents?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. The general rule under Illinois law is that electronic versions of documents have “the…