Topic: Trusts
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One of our bank’s trust clients has chosen its own CPA firm to prepare its tax returns. Our other customers use a CPA firm selected by our bank. This customer’s CPA firm does not have any other relationships with the bank. We pay the CPA firm (and issue an IRS 1099 form) and pass the expense on to the client. For purposes of our third party vendor management program, should we treat the CPA firm as our vendor?
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Yes, we believe that this CPA firm should be treated as a bank vendor for purposes of your third party vendor management program. Your bank’s primary federal regulator, the FDIC, has provided guidance on third party risk management that we think encompasses this scenario. The guidance defines a “third party” broadly to include “all entities…
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We have a business purpose loan that we are going to refinance, with cash out to improve the business (a restaurant). The collateral for the existing loan and the refinance is an assignment of beneficial interest in a land trust, which contains two restaurants and a single-family dwelling. Is this reportable under the Home Mortgage Disclosure Act (HMDA) in 2018?
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Yes, we believe that this dwelling-secured loan is reportable under the new HMDA rules that became effective in 2018. We believe that a loan secured by an assignment of a beneficial interest in a land trust should be treated as secured by a dwelling, provided that the land trust holds a dwelling. Under the new…
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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?
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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…
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Our trust department has a trust committee that holds regular meetings. The committee has hired an attorney to attend committee meetings to serve as a “trust consultant” on issues facing the committee. Does this create a conflict of interest for our bank? Should we disclose this relationship in our meeting minutes? The attorney is not a member of the committee and has no voting privileges. However, he is compensated for attending the meetings, as are all committee members. His suggestions sometimes lead us to hire him for legal work. We want to be sensitive to potential conflicts, but he is one of the only expert trust attorneys in this geographic area, and our committee values him as a consultant.
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In our view, using the attorney as a “trust consultant” by itself does not pose a problem for your bank, provided that he continues to refrain from the trust committee’s voting process. However, because the attorney also provides legal advice on individual trust matters for the bank, we believe that he could (and perhaps should)…
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When we close a deceased customer’s account according to a small estate affidavit, should we make the check payable to the affiant or to the estate of the deceased customer?
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The terms of the small estate affidavit will dictate whom to make the check payable to. The statutory form for an Illinois small estate affidavit directs property holders (such as banks) to distribute the decedent’s property according to the terms of the affidavit. Accordingly, the affidavit may direct the bank to disburse the account funds…
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If an individual and his personal trust co-apply for a loan, do we need to require a statement of joint intent?
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Yes, we believe that you should require a statement of joint intent in this situation. The Official Interpretations to Regulation B state that “a person’s intent to be a joint applicant must be evidenced at the time of application.” An “applicant” is any person who has requested an extension of credit. A “person” includes (among…
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Can we require a person who has presented a small estate affidavit to present letters of office before they close out a deceased customer’s account?
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No, we do not believe that you can require letters of office when presented with a small estate to close a deceased customer’s account. The Illinois Probate Act requires a financial institution to comply with a small estate affidavit that is in substantially the same form outlined in the Act. The statutory form for the…
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We have a customer with a power of attorney over his father’s individual checking account. The account is not a payable on death (POD), but the son would like to convert it to one. We have a copy of the father’s will, which indicates that his four children will receive his estate in equal shares. Can we allow the son with power of attorney to add POD beneficiaries to his father’s account? If so, do we need to require that he add all four children, in light of the will’s directives?
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The answer depends on the specific language in the power of attorney document. Generally, an agent acting under a power of attorney does not have the authority to add or change account beneficiaries without an express grant of authority to do so (which would be identified in Section 3 of the statutory short form power…
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If we have a joint account with rights of survivorship, and one of two owners passes away, can we change the account into an individual account naming only the surviving owner without a signed signature card for the new account? We would like to clear up accounts with a deceased joint owner where we have been unable to contact the surviving owner, sometimes for a period of a year. We also have this problem when a tenant in common dies and the deceased owner’s executor or beneficiary does not remove the deceased owner from the account.
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Yes, your bank may remove a deceased joint owner’s name and social security number from an account, but we do not recommend opening a new account without a signed signature card from the surviving owner. As of the date of death, joint account funds automatically pass to the surviving joint owner. Assuming that your bank…