Whenever I talk to someone about a trust, I let them know that once the trust is drafted, signed, and notarized, that is not the end of what needs to be done.  Assets need to be put into the trust, a process called funding the trust, and I give instructions to clients on what they need to do to put assets into the trust, but that process is a different topic than what I want to discuss in this blog post, so I won’t go too much into the details of what funding a trust means here.

Instead, I want to discuss one of the most useful tools the law has developed for a trust, a certificate of trust.  A certificate of trust is a one or two page form that shows who is in charge of the trust, who can act on behalf of the trust, when the trust was created, the powers given to the trustees of the trust, the type of trust – revocable or irrevocable, and who created the trust.  This document shows almost all of the important actors and who has authority to do what in a short, almost summary type of format.

Colorado law allows a certificate of trust to be presented to a bank, other financial institution, or other entity or company or individual in lieu of a full copy of the trust being presented.  As such, a person who wishes to interact with a bank, other financial institution, or other entity or company or individual can provide the certificate of trust to prove the trust exists and show who is authorized to act on behalf of the trust.  And, the person who is in charge of the trust – the trustee – can then do what is necessary in working with a bank, other financial institution, or other entity or company or individual without needing to reveal the full contents of the trust.  This can make life much simpler and easier for the trustee.

 

A Certificate of Trust Allows the Trustee to Do Most Necessary Things

When a trust is established, a trustee often needs to set up a bank account in the name of the trust, or transfer investment assets to the name of the trust.  A bank or financial institution most often requires some sort of written proof that the person claiming to be the trustee is the proper person to act on behalf of the trust and has authority to act on behalf of the trust.  A trustee can provide the bank or investment company a copy of the certificate of trust to show that the trustee is property authorized to act on behalf of the trust and to show that the trustee is the person with whom the bank or financial institution should contact or otherwise interact with for trust matters.

Obviously a bank or other financial institution wants to be dealing with the proper person to discuss trust business.  Banks and other financial institutions are tasked with keeping monies deposited with a bank or invested with a financial institution safe from others taking those assets or monies.  We all trust that the money we put into our individual bank accounts or our individual investment accounts will only be for us, and not for other people.  The same goes for a trust.  If a bank or other financial institution receives instructions from someone other than the properly authorized trustee, then money and assets could be improperly given to someone who should not receive them.  Banks and financial institutions don’t want to give money to the wrong people, and then be on the hook for giving money to the right people after having given money to the wrong people, so they are careful in determining who is authorized to act on behalf of a trust.

A trustee who provides the certificate of trust can easily show they are authorized to act on behalf of the trust to such institutions, making the process of proving they have proper authorization quick and easy.

 

Using a Certificate of Trust Eliminates Many Complexities

When a bank or financial institution wants to know who is authorized to act on behalf of a trust, the entire trust agreement document can always be provided.  The trust agreement will show all of the necessary information of who is authorized to act on behalf of the trust, who created the trust, and when the trust was created.  However, the trust agreement also contains a lot of other information that may not be relevant to the bank or other financial institution.  For instance, a bank probably is not super interested in who the named beneficiaries of the trust are, or how assets are to be distributed to those beneficiaries, as that is the responsibility of the trustee to carry out.  There also may be provisions concerning tax treatment of assets, or other provisions that protect assets from Medicaid, other government programs, or creditors.  These provisions are not necessarily what the bank or other financial institution needs to see or know in many situations, but the provisions can cause confusion.

I have had clients who tell me the bank or investment company needs an explanation of a tax or other provision of the trust that does not concern anything other than the tax treatment of an asset to the beneficiary after the trust crater passes on.  The tax provision isn’t really even a part of what concerns the bank in setting up a trust checking account, but if a bank sees the entire trust agreement, then the bank may be concerned about things that are not relevant to the task at hand.  I am not saying that anyone should hide something from a bank, but rather that the simple act of setting up a bank account can remain simple by giving the bank a certificate of trust instead of the entire trust agreement and opening up all of the provisions to questioning by the bank.

 

A Certificate of Trust Can Also Help Maintain the Privacy of A Trust

One of the benefits of a trust is that the trust is a private document, and not a public document like a will that goes through probate.  This means that the terms of a trust don’t need to be disclosed to anyone outside of those involved in the trust.  Certainly the beneficiaries of a trust are entitled to see the terms or the trust and the trustee of the trust needs to follow the instruction of the trust, but that does not all need to be open to the rest of the world to see.  If a trustee gives a bank or other financial institution a copy of the entire trust agreement, then that opens the full contents of the trust or other financial institution.  Certainly a bank or other financial institution will protect the information given to them, but even having the trust open to those types of institutions may violate the trust creator’s intent and expectation of confidentiality.

When a trustee simply provides a certificate of trust to the bank, nothing more is disclosed than is necessary, and privacy is maintained.  This is can be preferable to giving the bank a copy of the entire trust agreement, although providing the full agreement is allowable, too.  Certainly there are situations where the entire trust needs to be given to a bank, like when a trust is attempting to obtain a loan and the bank needs to ensure the terms of the trust allow for the loan to be given, but without a need for the full contents of the trust agreement to be shown to a bank or other financial institution, a certificate of trust works for what the financial institutions need.

 

Using a Certificate of Trust Just Makes Life Easier for the Trustee

When acting on behalf of a trust and trying to prove that they are the proper person to act on behalf of a trust, the trustee usually wants to make that part as simple as possible.  Providing a certificate of trust to the necessary financial institution makes the process quick and easy.  As part of preparing a trust agreement for a client, I usually also provide a certificate of trust to make the trustee’s life easier once my part of drafting the documents is completed.  I find this sets up my clients for success once they leave my office, and helps them get the most out of their trust.  If you would like to set up a trust and get set up for future success with the trust, please click below to make an appointment to meet with me