Trusts & Membership Requirements
Who needs to be a member of the credit union when it comes to trusts? The settlor (sometimes referred to as the “grantor”), the trustee, the beneficiaries, or all the above? What about estate accounts? This blog discusses the requirements, for federal credit unions (FCUs), to open revocable trust accounts, irrevocable trust accounts, and estate accounts as well as when a trust itself can qualify for membership as a separate entity.
Membership for Revocable and Irrevocable Trusts
Article III, Section 6 of NCUA’s Model Federal Credit Union Bylaws (FCU Bylaws) discusses opening trust accounts, stating that shares may be issued in a revocable or irrevocable trust, subject to the following:
Shares issued in a revocable trust—the settlor must be a member of this credit union in his or her own right.
Shares issued in an irrevocable trust—either the settlor or the beneficiary must be a member of this credit union.
Both a revocable and irrevocable trust must state the name of the beneficiary. A trust may be a member of the credit union as an entity if all parties to the trust, including all settlors, beneficiaries and trustees, are within the credit union's field of membership.
The commentary to Article III, Section 6 elaborates on both revocable and irrevocable trusts. Starting first with revocable trusts, the FCU bylaws permit settlors to open a revocable trust account and states that “the requirement in the case of revocable trust accounts is simply that the owner of the funds be a member of the FCU.”
Further, the FCU bylaws permit settlors to satisfy the requirement to become a member of a FCU by using the revocable trust account itself, stating:
“Furthermore, provided the owner of the funds is within the field of membership and eligible for membership, he or she may use the vehicle of the payable-on-death or revocable trust account itself as the method of becoming a member. There is no requirement that the account holder first establish a regular share account to become a member. In accordance with legal opinions issued by the NCUA's Office of General Counsel, an individual may fulfill the requirement of becoming a member by subscribing to the equivalent of the par value of one share, which can be done through the opening of any type of account the credit union offers.”
The model bylaws provides that account opening requirements for irrevocable trusts are met “th[r]ough either the settlor, who is the original owner of the funds, or the beneficiary, who obtains an equitable, beneficial interest in the funds once the trust is established. So long as one or the other is eligible for membership, the credit union may accept the account.” (Emphasis added).
In regard to the trustee, the model bylaws state:
“Most irrevocable trusts have a trustee who has administrative responsibility for the account, and so the credit union will typically deal with the trustee for purposes such as sending monthly statements and year-end tax reporting. However, the trustee need not actually be a member of the credit union, and the credit union need not necessarily view the trust account as a separate legal entity, with its own separate tax ID number. Instead, it need only verify and confirm the eligibility of either the settlor or the beneficiary (or all of the settlors or all of the beneficiaries in the case of multiple settlors or beneficiaries) to join the credit union.” (Emphasis added).
Based on the above, whether the owner of the funds or the beneficiary needs to be a member is dependent on the type of trust. In the case of revocable trusts, the individual who is the owner of the funds must be a member. Whereas, with an irrevocable trust, membership requirements may be met by either the settlor or beneficiary, although the trustee is not required to be a member.
Membership for Estate Accounts
Regarding the ability of a FCU to open an estate account, NCUA Legal Opinion Letter, 92-0434, discusses this topic. The letter states:
“It has been the NCUA Board's position that, for an estate account, the conditions are analogous to the establishment of an irrevocable trust account. When shares are issued in an irrevocable trust, the settlor or the beneficiary must be a member of the credit union. By analogy, in order to establish an estate account, either the decedent (analogous to the settlor) or the beneficiary (or all the beneficiaries if more than one) must be a member of the credit union. The membership of the executor or administrator is irrelevant to establishing an estate account.” (Emphasis added).
As noted above, either the decedent or the beneficiaries can be a member of the FCU. If a decedent was not a member of the FCU, an estate account may still be established if all beneficiaries join the FCU or are already members. The executor or administrator (i.e., trustee) is not required to be a member. The legal opinion letter above also provides specific fact situations that are helpful.
Membership for Trusts as an Organization of Such Persons
If a trust wants to qualify for membership then it must independently qualify for membership as an "organization of such persons" or be specifically named within a FCU’s field of membership. Legal Opinion Letter, 99-1110, states that the settlors, trustee and beneficiaries are all required to be within the field of membership to be an organization of such persons. This is also stated in Article III, Section 6 of the FCU Bylaws which explains that “a trust may be a member of the credit union as an entity if all parties to the trust, including all settlors, beneficiaries and trustees, are within the credit union's field of membership.” The commentary clarifies that if this is the case, then “the trust will qualify as an organization of such persons, which is a standard clause in FCU fields of membership.” This applies to both revocable and irrevocable trusts.
In summary:
1. Only the settlors are required to be members in order to open a revocable trust account;
2. Either the settlors or the beneficiaries are required to be members in order to open an irrevocable trust account (Trustee is irrelevant);
3. Either the decedent or the beneficiaries are required to be members in order to open an estate account (Executor/administrator is irrelevant);
4. To qualify a trust for membership, all settlors, beneficiaries, and trustees must be within a FCU’s field of membership for the trust to qualify as an organization of such persons and obtain FCU membership.
Lastly, it should be noted that a FCU may want to compare their current bylaws with the current model FCU Bylaws to determine whether there are any discrepancies and whether any updates should be made.
