It can sometimes be challenging to get banks and trust attorneys on the same page.
“Trust” is a complicated word. In its simplest interpretation, it implies that one person can have unfettered faith in another, whether it involves personal relationships or business matters. When finances become a factor—as in fiduciary trusts—“trust” gets more complicated, partly because it involves several players, each with a different set of intentions and responsibilities.
Attorneys are key to establishing trusts for families involved in estate planning. They complete the required documentation and ensure everything can withstand legal challenges, and they give legal advice and tell clients what they have to do to set up their trust accounts. A client then funds the trust, and it becomes the bank’s role to hold the money in a trust account and operate according to federal and state regulations (which are designed to protect the funds). Thus, banks and attorneys have a similar goal—working in the best interests of their mutual clients.
Even with the best intentions though, misunderstandings and miscommunication can occur, and, when they do, they can send a seemingly solid trust account off the rails. In fact, the issue is widespread enough that last year, the Sonoma County Bar Association sponsored a forum titled “Banks Are from Mars; Trusts Are from Venus,” for participants to share their experiences and seek solutions.
Running into obstacles
Lawyers have their share of stories, both about setting up trusts and settling estates. Marlon Young, a partner at Merrill Arnone & Jones in Santa Rosa, says the biggest problem he’s encountered in the latter is delays, leading to increased costs for his clients. The reality is, he says, “ It always costs more than people hope or anticipate.” In his experience, delays often result because low-level bank employees lack knowledge of the way basic trust administration works—perhaps not recognizing the rights of trustees who have to deal with matters related to succession after a trustor dies—and don’t understand how to deal with unfamiliar situations. “They’ll say, ‘We have to send it to legal. I can’t do anything,’” says Young, who’s had banks freeze accounts. “If they have any concerns at all, they won’t do anything,” he says.
The potential for loss is real in such cases, because delays, especially lengthy ones, can have expensive consequences for trusts. For instance, an estate might have a bad investment that needs to be sold, and so it’s important to act quickly to avoid losing money, but the trustee can’t do anything if a bank’s slow response causes a delay.
Young gives the example of a husband and wife who died in a car accident. Their property had to be sold and, even though they had a trust in place, a bank delay caused a real estate deal to fall through. The couple had paid their mortgage with automatic withdrawals from their bank account, but when the account ran out of money, the payments weren’t covered and their mortgage went into arrears, causing the risk of foreclosure. “It took six months to unravel and solve things,” he says. In addition, the trust incurred $10,000 in fees because the delay meant the trust had to pay extra legal and bank fees. Initially, the fees were even higher, but the bank eventually realized its error and corrected it. It was worth pursuing, but that’s not always the case. “It oftentimes becomes questionable,” says Young. “Is it worth fighting for?”
That type of dramatic story, however, is unusual. “Usually you have time to solve the problem,” says Young, although it’s likely to cost the client more. He’d like to see banks be proactive and provide more training for employees, perhaps starting with a guest speaker who could familiarize them with trusts and the way basic trust administration works. “That could possibly open a dialog,” he says.
Young also suggests that attorneys take the initiative and find out how banks want them to present information. “Most problems can be solved with communication,” he says.
Lynn Sletto, associate attorney with the Meibeyer Law Group in St. Helena, finds dealing with banks relatively easy, although sometimes her clients get conflicting information when they’re dealing with more than one bank employee, and they can sometimes experience delays as well. She often hears that banks don’t respond quickly enough—in fact, it’s her clients’ biggest complaint. “Some clients run into hiccups and some don’t. But when they do, it costs them more money,” she says.
She finds that some of those “hiccups” are the result of the increased paperwork that comes with changes in bank regulations and recalls a circumstance in which she was setting up a trust with several trustees in different states. Each trustee had to provide information for a single, joint bank account; in that kind of situation in the past, she’d been able to get different documentation from each trustee and then put everything together. This time, she discovered the bank wouldn’t accept multiple documents because banking regulations had changed, and so she had to start over, sending a single document in a round robin for each trustee to sign, which resulted in additional costs for her client. “I had to get it notarized by everyone. It would have been nice to have known ahead of time,” she reflects. Otherwise though, “I haven’t run into many difficulties,” she says.
Looking at the other side
The attorneys interviewed for this article don’t fault banks for being careful. “There are so many possible scenarios with a trust. Banks need to ask a lot of questions to sort out who the authorized parties are and what actions they’re allowed to take with respect to assets held by the bank,” says Thomas Velladao a tax, probate, trust and estate attorney and managing partner at Marin Law Partners, LLP, which has offices in Corte Madera, Petaluma and Napa (he’s also managing partner in the Napa CPA firm Uboldi, Heinke & Velladao, LLP). He believes banks want to work with trustees: “They want to keep your business,” he says.
He observes, however, that as incidences of identity theft and fraud grow, banks are increasingly uneasy and need to be sure everything is correct. He gives the hypothetical case of an unfamiliar person who appears at a bank with a Small Estates Declaration claiming to be an estate’s beneficiary. “[Banks] typically balk at that,” he says. “They want to make sure everything is legitimate, so a beneficiary will oftentimes need to get an attorney to confirm their claim is legitimate.”
“Banks are generally conservative,” says Velladao, who has a 30-year background in public accounting, “so they’re cautious.” But if it’s in the best interest of the client, he believes it’s possible to work with banks to help them understand a situation.
Young also recognizes that some situations put banks in a tough position. If a decedent’s children are fighting over an estate, and the bank doesn’t know who the trustee is, it might bring everything to a standstill while it sorts things out, and “I can’t blame banks for that,” he says. He points to financial elder abuse as another potential problem and observes that, if something seems amiss and an employee suspects a client is a victim, the bank has a duty to report it. He understands the banks’ worry about transferring money to the wrong person. “They should question it if they’re concerned,” he says.
Finding solutions
Although problems do exist and can often be frustrating, they’re not insurmountable. Velladao suggests that, if trustees are investing trust assets, they may want to choose a bank with a “healthy size” trust practice to avoid any potential pitfalls in administration. He does acknowledge, however, that many trustees already have banking relationships, and “An attorney isn’t in the position of telling them what bank to go to.”
If a trustee encounters a bank employee who’s skeptical or doesn’t understand how a trust works, he suggests referring the employee to the trust’s attorney, who can corroborate the client’s information. Sometimes that’s all it takes to ease communication. So when visiting a bank, a trustee or client should call ahead to schedule an appointment with someone familiar with trust dealings, then follow-up by taking the relevant documents and a cell phone with the attorney’s number in case it’s necessary to have the attorney speak with the bank employee on their behalf. “By following this course of action, you can usually accomplish what you need to,” says Velladao.
He adds that it helps to understand the problems in the first place, so a trustee/executor client would be wise to pick an attorney who can anticipate issues and deal with them in a way that avoids problems. It also helps to talk to the bank. If the obstacles are too great and progress isn’t being made with the appropriate bank official, it can be helpful for the trustee’s attorney to talk to the bank’s attorney.
Going local
Working with community-based banks has its advantages. “Local banks are easier to deal with,” says Young, who find, it’s easier to reach someone who can make a decision in smaller, regional banks, where he can walk into the office, sit down and explain things. In contrast, larger, interstate banks might have legal departments that are out of the area, perhaps even out of state, so they aren’t as easily accessible for face-to-face conversations. In addition, their attorneys might not be familiar with California law.
Jennifer J. Finger, senior vice president and treasurer at Westamerica Bank, which operates branches throughout Central and Northern California and has its corporate headquarters in San Rafael, agrees that it’s easier to be directed to someone who understands trusts in a smaller bank, but she also believes good communication is essential. “It’s very important to have clear communication on both sides,” she says.
She acknowledges that a bank employee who doesn’t work in the trust department might not understand what’s required—or allowed—when faced with an issue relating to opening a trust account, and she therefore recommends dealing with an administrator in the trust department instead of someone in a clerical position. She explains that a bank administrator can guide a client, so she suggests the client and attorney have an initial meeting with a bank administrator to help determine what a client wants to accomplish with a trust. “They don’t always have a clear picture of what they want,” she says.
She’s aware that delays are common when it’s time to access an account to settle an estate, and says, “One way to speed the process is to find out what kind of actions can be taken to avoid going to court.” She says a signed consent might be useful, but emphasizes that what’s most important is having open communication between people with clear minds who are willing to resolve problems constructively. This is especially important if emotions are intense, as is sometimes the case when family members are involved.
Carol Young, CTFA, a senior trust officer at Bank of Marin, which has branches in Marin, Sonoma and Napa counties, plus a commercial lending office in San Francisco and administrative offices in Novato, also puts a high value on communication. “We keep communication lines open. That’swhat it’s all about. It’s relationship-driven,” she says, observing that she sees a similar philosophy more often in regional banks. “We’re local. We take pride in that,” she says.
Beyond philosophy, Bank of Marin takes the added step of training its employees so they understand trusts. “The front-line staff gets training,” says Young, adding that employees know they should refer clients to the trust department if issues arise. In addition, members of the trust department go out and meet with branch staff, and the bank has monthly staff meetings to keep employees current.
As a trust officer, Young also provides personalized service to clients who need guidance. She explains that an individual could walk into the bank, tell us his wife has recently died and he doesn’t know what to do. “We get cold calls all the time like this,” she says. In such a case, she meets with clients and uses a checklist to help them get organized. She believes it’s important to engage with clients, but not ask too many questions, especially if it’s an emotional time, so she provides a folder of information they can take home to read and absorb in private.
She believes passionately in advance planning and strongly recommends that people make sure their affairs are in order. “Don’t wait for a crisis,” she says. “You owe this to your family.” She recommends people have four essentials in place to ease the process for successors: a will, a trust, a power of attorney and an advance medical directive.
For a trust to get off to a good start and operate effectively, Young believes it’s important for attorneys and banks to work together. “[Attorneys] do the planning. We do the execution. It’s very much a collaboration,” she says. “There are always opportunities to help each other.”
With the common goal of doing the best job possible for a client, it appears attorneys and banks aren’t so far apart. In discussing a solution to the inevitable hitches, the one word that everyone mentions is communication. It’s undoubtedly the crucial component for resolving most problems. In the words of Bank of Marin’s Young, “You have to know how to treat people and have open lines of communication.” Both sides have a desire to do the right thing, and when you pair that goal with communication, it’s a powerful way to pave the path to greater trust.
About Trusts
A fiduciary trust is a legal arrangement in which a person (trustor) appoints someone else (a trustee) to control his money or property for the benefit of a beneficiary. A trust can be either revocable (can be changed) or irrevocable (cannot be changed), and it eliminates the need for probate, which takes more time, is publicly recorded and is more expensive. A trust includes the following:
Trustor: The individual who funds a trust. People have various goals in establishing trusts, including tax advantages, the desire to maintain privacy and avoiding delays in settling an estate.
Attorney: An attorney drafts all the documents for a trustor and helps set up a trust.
Bank: A bank holds the trust’s funds and is responsible for keeping the money safe.
Trustee: A trustee, or trust administrator, administers the trust, usually dealing with assets that are already there. The trustee could be a professional bonded fiduciary trustee or a family member. Sometimes a bank acts as the trust administrator in return for a fee, usually a percentage of the funds in the trust. Banks are neutral parties, so they can avoid family disputes. An attorney—usually independent of the one who sets up the trust to avoid a conflict of interest—can also act as a trust administrator.
