Trusts can be a very versatile and powerful tool. They allow us to designate beneficiaries and assign wealth to them in nearly any way, from monthly payouts to a conditional lump sum. But unlike most other estate planning documents, trusts are much more than just a document.
The paperwork surrounding a trust establishes its existence and boundaries. Trust documents define how, when, and why a trust was formed, what it consists of (i.e., the assets funded into it), as well as who remains responsible for its management and continued existence.
But trusts themselves are legal entities, defined by their three-way relationship between the trustor, trustee, and beneficiaries. Trusts are capable of holding property and assets and can even be written to irrevocably separate an owner from their property while they still live, protecting it from creditors and the impact of estate taxes.
Because trusts are powerful and comprehensive estate planning tools, banks and other financial institutions will want to see the documentation for a trust in order to verify that certain assets are indeed within it and remain under your control (in the case of a revocable living trust, for example). A lender may not want to give out a loan if you do not have access to certain assets that can act as collateral in the event that you cannot repay.
Furthermore, banks and other institutions want to ensure that someone claiming to be your trustee is, in fact, acting under the legal authority of an existing trust document, which also includes the assets or funds they wish to access.
But maybe you do not want that bank to know exactly how your trust works, or whom you are bequeathing its contents. Maybe you are protective of the confidential information your trust documents provide and are not sure you want to share them with a lender. This is where a certification of trust comes into play.
What is a Certification of Trust?
A certification of trust is a document certifying that a trust was established, exists, and is under the management of a certain trustee. Certifications of trust prove the trustee’s legal authority to act as such. Certifications of trust also serve as an abbreviated version of the trust.
Certifications of trust provide only the most basic necessary information for a bank or lending institution to verify the existence and contents of a trust, backed up by a notary. With a certification of trust, a trustee can essentially prove that they are indeed tasked with managing the contents of said trust, and that said trust exists – without needing to present the full trust documents.
How is a Certification of Trust Created?
As with most estate planning documents, a certification of trust is created by an attorney based on the information provided in your trust documents. It is usually a good idea to draft up a certification of trust with the same professionals who created your trust.
Once the certification of trust has been drafted, it must be signed by the grantor/trustor in front of a notary public. It is important that the certification of trust identifies the trustee and includes your signature as grantor/trustor. After notarization, the certification should be recorded at your local county office.
The basic contents of a certification of trust are as follows:
- The name of the trust.
- The creator/settlor of the trust.
- The acting trustee of the trust.
- The acting trustee’s powers under the trust.
- Whether the trust is revocable or irrevocable.
- Identifying successor or additional trustees.
- The trust identification number (a number issued by the IRS known as an Employer Identification Number, or the settlor’s social security number)
- The title to trust assets.
There are also online services for creating certifications of trust, but these are not guaranteed to be accurate. There are state-specific laws regarding the creation of trusts and related trust documents, and certifications of trust must be tailored to the trust they are meant to certify.
It is best to minimize any potential for errors – and the difficulties those errors can bring – by working with an attorney experienced in local trust and estate planning law.
When is a Certification of Trust Relevant?
Certifications of trust play a role whenever you wish to authenticate your trust, or whenever your trustee must authenticate their authority to manage, transfer, move, or sell assets within the trust.
A certification of trust does not replace your trust documents in every instance, but they can be useful in most instances where some form of verification or authorization is needed, provided they are up-to-date and notarized.
Do All Trusts Need a Certification?
No. A certification of trust is usually a completely optional document. However, being a shortened form of the original trust document, it reveals much less information about your trust than the document would.
You should consider creating a certification of trust if you wish to preserve your privacy.
Are Certifications of Trust Universal?
Most, but not all states have statutes regarding trust certifications. There may be state specific requirements in the way a certification of trust is set up or worded, as well as legal ramifications for any institutions or banks in the state that refuse to accept a valid certification of trust. It should be noted that you should have a certification created to match your needs in your state of residence.
Do Certifications of Trust Need to be Updated?
Yes, absolutely. Certifications of trust, trusts, and estate plans, in general, are not static. Even simple changes, from the addition of a new trustee, to an amendment to your trust, call for a new certification of trust. To maintain validity, any certification should reflect the trust’s newest status.
Similarly, if a trust becomes irrevocable (for example, after the grantor has passed away), the trustee may need to contact the grantor’s lawyer about remaking a certification of trust. Some banks also do not accept certifications older than a year or two. They may ask for a more recent certification as proof of legal authority.