Why Does the Bank Want To See My Living Trust?

By: Sanford R. Altman, Esq., retired

Question:
My lawyer recently prepared a revocable living trust for my wife and me. We followed his instructions and asked our bank to move our accounts into our trust. The bank manager said that first we would have to give the bank a copy of the trust itself. Is that right?

Answer:
No it is not and you are absolutely correct in questioning this. It is just as if they asked you to see your will since your trust also says who gets your property when you die. Frankly, it’s none of their concern and I have called many bank managers over the years and told them just that.

For those of you who are saying, “What’s this living trust he is talking about?,” a little background. A revocable living trust is the most flexible estate planning tool aimed at an easy transfer of your property to your family at the time of your death. While a will must be approved by the Court when you die (the probate process), which can cost up to 5% of your estate in attorney’s fees alone, your living trust requires no Court approval and if done properly your family to completely avoid probate. This is the main reason why more and more people are choosing to utilize the living trust instead of just a will.

How does this work? Your lawyer prepares a document creating a new entity, your trust, over which, while you are alive and well, you as trustee have total control. Your trust can own as much of your property as you put into it. The more you put into it, the more effective it is as far as avoiding probate.

The trust is largely made up of your instructions concerning how it should be run, including who gets your property when you pass away. An essential element of the trust is that you have also chosen a back-up trustee in the event that you become ill or die. Since the trust does not die with you, your back-up trustee simply steps in and distributes your property as you have instructed without having to go to Court, thus avoiding probate.

Other impressive advantages of the living trust over a will may include avoiding guardianship proceedings if you become incompetent, and avoiding multiple probate proceedings as would be the case if you only had a will and owned property in more than one state.

Trusts can only avoid probate if you transfer your property into them, including your bank accounts (technically called “re-titling” or changing the name on your account). This is where the banks come in. Why are banks so nosy about your trusts? I have heard different answers for this question from the banks – none satisfactory. However, many of our clients find the privacy aspect of a trust to be especially important (as opposed to a will, which eventually becomes a public record). When you hand your entire trust over to a bank, you are giving up that privacy. Who inherits your estate should be no one’s business but your own and your attorney’s.

So what can be done about this, aside from having your lawyer call and yell at the bank manager or changing banks? It’s all in the preparation. First, make sure that the attorney who prepares your trust includes provisions specifically relieving the banks from responsibility for your actions as trustee. From a legal standpoint it’s unclear why they would be worried about this, but, when I have shown banks this provision, they have backed off their request to see the entire trust. Second, when you go to your bank to re-title your account to the name of your living trust, bring with you copies of those parts of the trust that the bank actually does need. This includes the exact name of your trust, the names and addresses of the trustee (generally yours) and the successor trustees. All of this should be included in a “Memorandum of Trust” which generally should be found at the end of your trust document. Other than this information, the bank does not need to know more. If they insist on seeing an entire document which includes your bequests at the time of your death, they are simply being overreaching and intrusive. This is when it’s time to take step number three – find a bank that respects your privacy.