Banks, financial institutions, and other lenders often make loans to trusts or loans that are guaranteed, collateralized, or otherwise supported by trusts. Lenders should perform due diligence for a trust, just as they would for other independent legal entities. This means verifying that the trust in question has the legal authority to borrow money, issue a guaranty, or pledge its assets, as applicable, and that the person signing documents on behalf of the trust is authorized to do so.
Evidence of such authority would be found in the trust instrument, but it can be lengthy and will contain dispositive and other provisions that the trustee and trust beneficiaries might prefer remain private. A due diligence process requiring review of the entire trust instrument in such a case would be a lose-lose proposition the lender must spend time and money reviewing a lengthy trust instrument, perhaps amended multiple times, and trustees and beneficiaries must reveal otherwise private information.
Use of a certification of trust can avoid these problems. A certification of trust (or “trust certificate”) is a short document signed by the trustee that simply states the trust’s essential terms and certifies the trust’s authority without revealing private details of the trust that aren’t relevant to the pending transaction. It bridges the gap between what a lender needs to know and what a trustee wants to reveal a true win-win.
Many states, including Missouri (see Mo. Rev. Stat. 456.10-1013), have adopted statutes designed to protect trust privacy and discourage requests for complete trust instrument copies by persons entering into contracts or other arrangements with trusts. The statutes accomplish this by permitting the trustee to furnish a certification of trust (which may include selected trust excerpts necessary to facilitate a particular pending transaction) rather than a copy of the complete trust instrument and protecting the person relying in good faith on such a certification of trust. Although this article focuses on the use of certifications of trust by lenders in the context of financing transactions, the statutes are generally applicable to any transaction involving a trust.
Under Missouri’s statute, which is modeled on the certification-of-trust provision of the federal Uniform Trust Code, the trust certificate must (1) be signed by all of the trust’s trustees; (2) state that the trust has not been revoked, modified, or amended in any way that would cause the representations in the trust certificate to be incorrect; and (3) contain the following information:
verification that the trust exists and its execution date;
the identity of the person creating the trust (the grantor or settlor);
the identity and address of the currently acting trustee;
the powers of the trustee;
whether the trust is revocable or irrevocable and the identity of any person having power to revoke the trust;
the authority of co-trustees to sign or otherwise authenticate and whether all or less than all trustees are required in order to exercise the trustee’s powers;
the trust’s taxpayer identification number; and
the manner of taking title to trust property.
The statute makes clear that a trust certificate need not include the dispositive terms of the trust, but it does permit the lender, or any other trust certificate recipient, to require the trustee to provide excerpts from the original trust instrument and later amendments designating the trustee and conferring on the trustee the power to act in the pending transaction, again balancing the lender’s need to know against the trust’s need for privacy.
Even if a lender already possesses a complete copy of the trust instrument, the lender, as trust certificate recipient, is relieved of the need to review the instrument. Under Missouri’s statute, when a trust certificate that meets statutory requirements is obtained, the recipient is expressly protected from liability when it acts in reliance on the certificate without knowledge that the representations in it are false. The lender is expressly permitted to assume, without inquiry, the truth of the statements contained in the certificate, and knowledge of trust instrument terms may not be inferred solely because a copy of all or part of the trust instrument is in the lender’s possession.
Further, if the lender enters into the pending transaction in good faith in reliance on the trust certificate, the lender may enforce the transaction against the trust’s property as if the representations in the certificate were true.
Lenders are cautioned, however, not to demand a copy of the trust instrument in addition to a trust certification and relevant trust excerpts, as doing so may subject the lender to liability for damages if a court determines that its demand was not made in good faith.
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