Understanding Trust Certifications
A revocable living trust is an important part of estate planning. This is because living trusts offer many benefits to grantors and their loved ones, including the ability to avoid probate, reduce taxes, and preserve privacy regarding their financial affairs. Perhaps most importantly, the creator of the trust can provide specific details about how trust property should be used, which can help shield beneficiaries from creditors or their own poor judgment.
Getting a trust agreement in place is only the first step to legally carrying out the terms of the trust instrument. For a trustee to fulfill their role, they will need a certificate of trust to provide to financial institutions where trust assets are held. Keep reading to learn more about trust certification, what a certificate of trust does, and how to obtain one.
Parties Involved in a Trust
Before diving too deep into trust certifications, it is important to understand each distinct role in a trust agreement, which may include the following:
| Party | Role |
| Grantor | A grantor or settlor makes the trust. |
| Trustee | The trustee is the person who is responsible for carrying out the terms of the trust for the benefit of the beneficiaries. Natural persons or financial institutions can be trustees. |
| Cotrustees | Cotrustees are trustees who serve together. |
| Successor trustee(s) | A successor trustee is the future trustee who will assume the responsibilities of the currently acting trustee if the trustee resigns, passes away, or becomes incapacitated. |
| Beneficiary | The beneficiary benefits from the trust agreement. |
| Contingent beneficiaries | A contingent beneficiary only receives the benefit if a condition is met. |
What Is a Certificate of Trust?
A certificate of trust is a legal document that certifies that a trust was established. It is used to confirm that trust assets are still held in the trust and that the trustee has the legal authority to act on behalf of the trust to manage and access all trust assets.
You can think of a certificate of trust as a type of summary of the trust that is shorter than the complete trust agreement. It can provide third parties who need information about the trust (such as financial institutions) important information about the trust without having to disclose all of the information about the trust. A certificate of trust contains important identifying information about the trust, including the formal name of the trustee, the name of the trustee, and the date it was created. Other names for a certificate of trust are an abstract or memorandum of trust.
A certificate of trust can also serve as a way to verify the trustee’s right to act on behalf of the trust. The certificate of trust is a self-certification, so the trustee signs it in front of a notary public as a declaration on penalty of perjury. In certain jurisdictions, the certificate of trust is also known as the certificate of trustee authority.
Why Would I Need a Certificate of Trust?
Trust certification may be necessary or desirable for various reasons, such as:
- Banks, brokerage firms, and other financial institutions and financial service providers will require you to provide a certificate of trust when you are opening a new account.
- A certificate of trust may be used in transactions involving escrow accounts, such as when you are purchasing real estate.
- A certificate of trust allows a trustee to act on behalf of the trust without disclosing confidential information, such as the name of the beneficiaries, when they will receive their inheritance, and what their inheritance will consist of.
What Type of Information does a Certificate of Trust Indicate about the Trustee of the Trust?
This is an important question because the trustee will ultimately be responsible for acting on behalf of the trust. The trustee has a fiduciary duty to put the trust’s interests ahead of their own. The trustee is the legal owner of the title to the assets in the trust.
A certificate of trust outlines the powers of the trustee, which may include the following rights and responsibilities:
- Buy or sell trust assets
- Safeguard trust property
- Buy or sell real estate owned by the trust
- Make mandatory and discretionary distributions to beneficiaries
- File taxes on income the trust earns with the IRS and local state taxing authorities
- Distribute earnings to beneficiaries
- Move assets around within a trust
- Create sub-trusts for different beneficiaries or purposes
- Invest trust assets in a prudent manner
- Manage and administer trust assets
- Record expenses related to the trust
- Maintain accurate records regarding the trust
- Carry out the other terms of the trust
State Laws Regarding Certificates of Trust
Trust laws are determined by state law. There is not a consistent legal framework for trusts across the United States. Therefore, different states deal with trust certifications differently. Many states have specific laws that dictate the terms that must be included in a trust certificate and mandate that banks and other financial institutions accept the trust certificate in place of a copy of the trust agreement. The trust certificate must follow the applicable guidelines to be considered valid in the state.
States that have specific guidelines regarding trust certificates include the following:
- Alabama
- Arizona
- Arkansas
- California
- Delaware
- District of Columbia
- Florida
- Idaho
- Iowa
- Indiana
- Kansas
- Maine
- Michigan
- Minnesota
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Mexico
- North Carolina
- North Dakota
- Ohio
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Virginia
- West Virginia
- Wyoming
These laws are usually included in the probate code of the state.
Information in a Certificate of Trust
As discussed above, state law may dictate what information must be included in a trust certificate. Some states have a specific certificate of trust form you can use. Generally, the following information must be included in the certificate of trust:
- The name and identification of the settlor of the trust
- The name of the trustee of the trust
- Identifying information about the trust or the trustee, such as the taxpayer identification number of the trust or the Social Security number of the trustee
- The date of the trust agreement
- Who has the power to revoke the trust
- An outline of the important information about the trust
- The Trustee’s powers
How Can I Get a Certificate of Trust?
Because a certificate of trust is a self-certification, you can make your own certificate of trust or ask the law firm that created your trust to provide you with one.
All grantors must sign the trust certification for it to be valid. You must sign the trust certification in front of a notary public. The certificate of trust will usually include a statement that says something like, “The undersigned affixed their signature to this document under the penalty of perjury.”
Certificate of Trust FAQs
Estate planning is a complex field. It is our goal to provide you with information about your frequently asked questions about certificates of trust and other estate planning matters. Some of the most common questions regarding trust certification include:
Who Can Sign a Certificate of Trust?
Who can sign a certificate of trust depends on state law. The grantor(s) usually sign the trust certificate. Likewise, the trustee may be able to sign the trust document depending on the laws of the state in which the trust is settled. If a law firm prepared the trust certificate, the creating attorney may also be able to sign the trust certificate depending on laws of the state in which the trust is settled.
What Happens if a Bank Does Not Accept a Certificate of Trust?
If a bank does not accept a certificate of trust in lieu of a copy of the trust instrument, it may be subject to legal and financial penalties, as outlined in the relevant state law, especially if their refusal is determined to be in bad faith.
Does a Certificate of Trust Need to Be Recorded?
A certificate of trust does not need to be recorded.
How Often Do I Need to Update the Certificate of Trust?
Because the certificate of trust details the terms of the trust and includes changes from the original trust, it may be necessary to periodically update the certificate of trust. Some examples of times that may require an update of the trust certification include:
- A trustee passes away and a new trustee is appointed
- The trust buys or sells real estate and a pending transaction has recently concluded
- The trust has disposed of significant property that affects the trust and distributions
- Many years have passed since the last update to the certificate of trust and many changes have occurred in that time
Takeaway
A trust can provide peace of mind to a grantor who appoints a trusted person to manage the trust. A trustee may want to use a certificate of trust to avoid having to disclose private information about the trust.