Topic: Trusts
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We are a former savings and loan association and have been using IRA trustee documents for decades. However, we are technically a custodian, not a trustee, since we do not have investment authority. Should we be using custodial agreements and other documents instead of trustee documents?
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Yes, we believe that your bank should be using custodial agreements and other documents instead of trustee documents since your bank is not a trustee with investment authority. Under the Illinois Trust Code, trustees have a duty to invest and manage trust assets as a prudent investor would. Without investment authority, your bank cannot fulfill…
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We serve as trustee for two trusts that annually file Form 990-PF tax returns for private foundations. Generally, the rules governing private foundations under Section 501(c)(3) of the Internal Revenue Code require the trusts to annually distribute funds for their charitable purposes equal to at least 5% of the fair market value of the trusts’ assets. In this case, the majority of the trusts’ assets are farmland, and the only way to distribute funds equal to 5% of their assets would be to sell the farmland. Is there a way to avoid this? Can the type of the trusts be changed to preserve the assets, since the grantor did not intend for the land to be sold?
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We do not believe that the trusts you have described would qualify for any exceptions related to the requirement of a private foundation to make distributions for charitable purposes. Additionally, trusts may be modified by the settlor only if the trust expressly provides that the trust is revocable or amendable, or by a court according…
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We have sold all of our trust accounts to another institution, but “Trust” remains in our bank’s name. Are there any regulatory restrictions on a bank retaining “Trust” in its name if it does not have any trust accounts? We still retain our trust powers in our charter.
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No, we are not aware of any regulatory restrictions on using the word “Trust” in your bank’s name. We believe that your bank can retain the word “Trust” in its name, even though you do not currently have any trust accounts. The Illinois Corporate Fiduciary Act prohibits a corporation that has not received a certificate…
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Are we required to notify named beneficiaries of a payable on death (POD) account after learning of a customer’s death? Would a POD account beneficiary become an “apparent owner of property presumed abandoned” under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA)?
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We are not aware of any law that would require you to notify POD account beneficiaries after learning of a customer’s death. However, we recommend reviewing your account agreements to determine whether they require notification to the POD account beneficiaries. Further, such beneficiaries would be considered “apparent owners” under the Illinois RUUPA. The Illinois Trust…
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Can a sole proprietorship account have a payable-on-death beneficiary?
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Yes, a sole proprietor may name a payable-on-death beneficiary for their account. The Illinois Trust and Payable on Death Account Act provides that accountholders may designate payable-on-death beneficiaries for “any account, deposit, certificate of deposit, withdrawable capital account or credit union share in any institution.” There is no exclusion for sole proprietorship accounts or other…
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We are an Illinois state-chartered nonmember bank, and our trust department has a master deposit account for our trust funds. We would like to pledge securities to this account to provide additional deposit protection for trusts that occasionally exceed the FDIC insurance limits. Are there any regulations or requirements we need to be aware of to establish this pledging?
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Generally, Illinois state banks may pledge their assets to secure private trust funds, but they must seek the FDIC’s approval before doing so. Additionally, we recommend reviewing the individual trust account agreements to determine whether any collateralization requirements apply to trust funds. The FDIC Trust Examination Manual states that “in order for a state nonmember…
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Our trust department requires bank directors who serve on the trust committee to sign a form disclosing their securities purchased or sold during the previous quarter involving $10,000 or more. Should this requirement be limited to bank officers and employees, or are bank directors considered employees if their only function is as a director and they are not otherwise employed by the bank? Also, what is the timeframe for submitting the disclosures?
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The FDIC’s quarterly reporting requirements for certain officers and employees who purchase or sell securities aggregating more than $10,000 in a calendar quarter do not apply to bank directors. However, directors who also are officers are subject to these requirements. The FDIC’s Trust Examination Manual confirms that “bank directors are not covered by this provision”…
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We have a customer who has dual citizenship in the U.S. and Jordan and is a resident of Jordan. She would like to set up a trust and serve as both the grantor and income beneficiary of the trust. Our bank will serve as trustee. Are there any special tax withholding or tax return filing issues we need to address, since the customer resides in Jordan?
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No, we are not aware of any tax withholding or tax return filing concerns related to a U.S. citizen living abroad. While we are not accountants and are not experts in questions of international taxation, the IRS has made clear that for U.S. citizens, “the rules for filing income, estate, and gift tax returns and…