Trusts (New Jersey)

Trusts (New Jersey): Summary

An informal trust is created when a person sets up a deposit account in their own name, followed by the words “trustee for” a named beneficiary. The term “Totten Trust” or “Payable on Death” is used to describe a type of trust where the named beneficiary is entitled to the funds upon the death of the account owner. The person who sets up the account is deemed to be the owner of the funds and is entitled to deposit and withdraw funds from the account as they deem fit. When the depositor dies, any funds in the account automatically become the property of the beneficiary.

Trusts may be revocable or irrevocable. A revocable trust is one that may be altered, changed, modified or revoked after it is established. An irrevocable trust, as the name implies, is not revocable once it has been established. Once a Grantor transfers property to an irrevocable trust, the Grantor can no longer take the property back from the trust.

Trusts that are created during the Grantor’s lifetime are called “living trusts.” Trusts that are included in a will and therefore do not take effect until after the death of the Grantor are called “testamentary trusts”.

An Account Held by a Trust

An account held by a trust is an account opened by and in the name of a trust. A trust may establish an account at a credit union provided a valid trust agreement has been executed and the trust is eligible for membership as specified in a credit union’s common bond. The trustee is the only person authorized to transact business on the account.

Share Insurance
Trust deposits are insured under the provisions governing trusts described in the NCUA Rules and Regulations. Detailed information about insurance issues for trusts may be found under the topic "Share Insurance".

Trusts (New Jersey): Additional State Considerations

State-Chartered Credit Unions

A credit union may offer joint accounts, trust accounts, or pay-on-death accounts, as provided by the Multi-party Deposit Account Act. These accounts may be held as shares, share certificates, deposits, deposit certificates, or any other form provided by law.

A credit union may act as a trustee or custodian of:

1. Individual retirement accounts authorized by state or federal law;
2. Pension funds of self-employed individuals or of a company or organization sponsoring the credit union;
3. Other similar retirement or pension plans;
4. Pension and profit-sharing plans.

The Board may authorize the payment of dividends from the undivided earnings. Dividends may be paid at varying rates with respect to the conditions that pertain to each type of account, including, but not limited to, minimum balance, notice and time requirements.

Trust Accounts and Revocable Trusts

On January 19, 2016, the New Jersey legislature passed the New Jersey Uniform Trust Code (NJUTC), which became effective on July 17, 2016. The Uniform Trust Code (UTC) is a body of trust laws created to provide consistency and similarity between the trust laws of all states. The NJUTC is codified at 3B:31-1 et seq.

Trust Account

Under New Jersey’s Credit Union Act, a credit union may offer trust accounts, which may be held as shares, share certificates, deposits, deposit certificates, or any other form provided by law. 17:13-101(d).

Termination of Trust

A trust terminates to the extent the trust is revoked or expires pursuant to its terms, no purpose of the trust remains to be achieved, or the purposes of the trust have become unlawful, contrary to public policy of this State, or impossible to achieve. 3B:31-26(a).

Requirements for Irrevocability

A settlor may revoke or amend a trust, unless the terms of the trust instrument expressly provide that the trust is irrevocable, or that it is proved by clear and convincing evidence that the settlor intended for it to be irrevocable. 3B:31-43.

Modification or Termination of Irrevocable Trust

A noncharitable irrevocable trust may be modified or terminated upon consent of the trustee and all beneficiaries, if the modification or termination is not inconsistent with a material purpose of the trust. 3B:31-27(a). A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. 3B:31-27(b). A noncharitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust. 3B:31-27(b).

If not all of the beneficiaries consent to a proposed modification or termination of the trust, the modification or termination may be approved by the court if the court is satisfied that: (1) if all of the beneficiaries had consented, the trust could have been modified or terminated under this section; and (2) the interests of a beneficiary who does not consent will be adequately protected. 3B:31-27(e).

Certification of Trust

Instead of furnishing a copy of the trust instrument to a person other than a beneficiary, the trustee may furnish to the person a certification of trust containing the following information: (1) that the trust exists and the date the trust instrument was executed; (2) the identity of the settlor; (3) the identity and address of the currently acting trustee; (4) the powers of the trustee; (5) the revocability or irrevocability of the trust and the identity of any person holding a power to revoke the trust; (6) the authority of co-trustees to sign and whether all or less than all are required in order to exercise powers of the trustee; and (7) the name in which title to trust property may be taken. 3B:31-81(a). A certification of trust must be signed by all persons identified as currently acting as trustee, and it must state that the trust has not been revoked, modified, or amended in any manner that would cause the representations contained in the certification of trust to be incorrect. 3B:31-81(b)-(c).

Dealing with Trustee

One who acts in reliance upon a certification of trust without knowledge that the representations contained therein are incorrect is not liable to any person for so acting and may assume without inquiry the existence of the facts contained in the certification. 3B:31-81(f). Knowledge of the terms of the trust may not be inferred solely from the fact that a copy of all or part of the trust instrument is held by the person relying upon the certification. 3B:31-81(f).

Trusts (New Jersey): Accounts for Living Trusts

Nature of Living Trusts
Individuals sometimes create trusts to manage all of their assets, including money, real estate and tangible personal property, while they are still living. Such trusts are used as estate and tax planning tools. Such a trust is created as a separate legal entity and may be revocable or irrevocable. Members transfer some or all of the property which they own to the living trust, including their credit union deposits. In effect, the members are actually transferring the account funds from one entity (themselves) to another (the living trust). The trust becomes a member and establishes its own account at the credit union. Trustees are named to transact business on behalf of the trust.

The individual membership of the original owner will terminate unless the member retains the account holding a minimum of at least the par value of a share. If the member has a loan at the credit union, they must keep the account open with the minimum par value until the loan is repaid.

Membership
For membership eligibility purposes, living trusts are viewed as associations of persons. To be eligible for membership, the credit union's charter must allow it to accept organizations or associations of members. Generally, for federally-chartered credit unions, all parties to the trust (Grantors, trustees and beneficiaries) need to be within the credit union’s field of membership for the trust to qualify for membership.

Documentation
The credit union should not use their consumer signature card. Rather, the business account card should be used.

Before a membership is established in the name of a trust, the credit union needs to satisfy itself that a valid trust exists and that the person opening the account is authorized to do so under the trust agreement. It may review the trust document and retain pertinent information or it may ask the individual to complete a certification that a valid trust exists and that the individual has authority to conduct business on behalf of the trust. Refer to your State’s law to determine what additional information is necessary for a valid certification.

There is no requirement that the credit union retain a copy of the trust agreement. Obtaining such documents is at the discretion of the credit union. If the credit union’s procedures include the retention of the full trust agreement, legal counsel should be consulted in order for the credit union to consider any associated risks.

The trustees designated in the trust document are the only persons authorized to open an account and, generally, are the only permitted signatories. If there is more than one trustee named in the document, the credit union must determine whether each has authority to act individually or whether joint signatures are required for the transaction of business on the account.

A separate tax identification number is generally issued to a living trust. However, many forms of trusts exist and the credit union should refrain from giving advice on the correct number to use. If the trustee is unsure of the correct number, they should consult their attorney or a tax professional.

Share Insurance
Under the National Credit Union Administration's Rules and Regulations, living trusts are insured under the provisions governing revocable and irrevocable trust accounts if the terms of the living trust correspond to the limitations described in the Rules. If the trust fails to meet these limits, it is insured under the provisions governing unincorporated associations.

Death
Decisions as to the proper distribution of funds held by a living trust will always be controlled by the written instrument governing the trust and should not be made by the credit union. The trust agreement will generally provide the appointment of a successor trustee upon the death of a named trustee.

Transactions/Payment
Payment of funds in an account held by a living trust may only be made to the trustee or their duly qualified successor trustee. Transactions should be conducted in the trustee's representative capacity. Signatures must be as trustee, not in the member's original individual capacity.

Deposit Authorization
If a member receives direct deposits into their personal account, the credit union should require new authorizations to be signed directing these funds to be deposited into the living trust account. The original authorization to the member’s personal account is no longer valid.

IRA Accounts
If a member has an existing IRA account at the credit union, funds in that account may not be transferred to the trust. IRA accounts, by law, can only be owned by individuals. A member may change their beneficiary designation to direct funds to the trust upon their death.

Garnishment/Levies
Because the living trust is a separate legal entity, its assets can only be reached by a garnishment or levy that specifically names the trust. Any garnishment or levy issued in the individual's name are not effective in reaching funds owned by the living trust.

Setoff
A credit union's right of setoff attaches to deposits only if there is a mutuality of obligation between the accountholder and the debt. Therefore, a living trust's funds are subject to a credit union's lien only if the trust itself was obligated on the debt.

Trusts (New Jersey): Irrevocable Trust Accounts

Nature of Account
An irrevocable trust account is evidenced by a written trust agreement which states that the trust may not be revoked or amended by the grantor or any other person. Assets transferred to an irrevocable trust are gifts to the beneficiary. A trustee is designated to transact business on behalf of the trust. There may be more than one beneficiary and more than one trustee.

Documentation
The signature card should read as follows: "JOHN DOE, or his successor, Trustee, THE DOE IRREVOCABLE TRUST under agreement dated [mm/dd/yyyy]."

The trustees designated in the trust document are the only persons authorized to open an account for the trust and, generally, are the only permitted signatories. If there is more than one trustee named in the document, the credit union must determine whether each has authority to act individually or whether joint signatures are required for the transaction of business on the account.

A separate tax identification number is generally issued to an irrevocable trust. However, many forms of trusts exist and the credit union should refrain from giving advice on the correct number to use. If the trustee is unsure of the correct number, they should consult their attorney or a tax professional.

When an account is established in the name of a trust, the credit union needs to satisfy itself that the person opening the account is authorized to do so under the trust agreement. It may review the trust document and retain pertinent information and it may ask the individual to complete a certification that a valid trust exists and that the individual has authority to conduct business on behalf of the trust.

There is no requirement that the credit union retain a copy of the trust agreement. Obtaining such documents is at the discretion of the credit union. If the credit union’s procedures include the retention of the full trust agreement, legal counsel should be consulted in order for the credit union to consider any associated risks.

Methods for Change
Once established, the grantor may not alter, modify, amend or revoke the trust. The trustee, however, is generally authorized to select depositories for the funds in the trust and may move funds between institutions.

Membership
For federally-chartered credit unions, either the grantor or the beneficiary must be eligible for membership in the credit union before an irrevocable trust account can be established. If there are two or more grantors or beneficiaries, then either all the grantors or all the beneficiaries must be eligible for membership.

Death
In all events, the governing trust instrument controls the disposition of funds in the account. All decisions as to the distribution of the trust are made by the trustee and are never left to the determination of the credit union. The trust agreement will typically provide the appointment of a successor trustee upon the death of a named trustee. If that is the case, a new signature card should be executed by the successor trustee.

Payment
The credit union makes payment to the trustee or a duly appointed successor trustee.

Share Insurance
Irrevocable trust accounts are insured separately from the grantor’s other accounts. Detailed information about insurance issues for trusts may be found under the topic “Share Insurance ”.

Trusts (New Jersey): Revocable Trust Accounts

Nature of Account
A revocable trust account is established to hold funds in accordance with the terms set out by the grantor in a trust document. The trustee holds legal title to the funds on behalf of the trust.

Documentation
The signature card for an account owned by a revocable trust should contain the following language: "JOHN DOE, or his successor, Trustee of THE JOHN DOE REVOCABLE TRUST under agreement (or declaration) of trust dated [mm/dd/yyyy]."

The trustees designated in the trust document are the only persons authorized to open an account for the trust and are the only permitted signatories. If there is more than one trustee named in the document, the credit union must determine whether each has authority to act individually or whether joint signatures are required for the transaction of business on the account.

The trustee will sign the certification of taxpayer identification number. The taxpayer identification number of a revocable trust is usually the social security number of the grantor of the trust. However, many forms of trusts exist and the credit union should refrain from giving advice on the correct number to use. If the trustee is unsure of the correct number, they should consult their attorney or tax professional.

When an account is established in the name of a trust, the credit union must satisfy itself that the person opening the account is authorized to do so under the trust agreement. It may review the trust document and retain pertinent information and it may ask the individual to complete a certification that a valid trust exists and that the individual has authority to conduct business on behalf of the trust.

There is no requirement that the credit union retain a copy of the trust agreement. Obtaining such documents is at the discretion of the credit union.

Methods for Change
Once the trustee of a revocable trust has established an account at the credit union, only the trustee, or their duly appointed successor, may change, alter, modify or close the account. No other methods of change are permissible unless the grantor of the revocable trust revokes the trust and requests that all of the assets of the revocable trust be returned to the grantor.

Membership
For federally-chartered credit unions, the person creating the trust, the grantor, must be eligible for membership in the credit union.

Death
In all events, the governing trust instrument controls the disposition of funds in the account. All decisions as to the distribution of the trust are made by the trustee and are never left to the determination of the credit union. Typically, revocable trusts will provide for the appointment of successor trustees in the event a named trustee dies or is no longer able to serve. If that is the case, a new signature card should be executed by the successor trustee.

Payment
The credit union makes payment to the trustee or a duly appointed successor trustee.

Share Insurance
Insurance coverage for deposits owned by a formal revocable trust is based on the interests of each qualifying beneficiary that the grantor has named in the trust. Detailed information about share insurance issues for trusts may be found under the topic “Share Insurance ”.

Trusts (New Jersey): Totten Trust Accounts

Nature of Account
A Totten Trust is a way for a member to designate a person who will inherit a bank account after their death. The person who sets up the account is entitled to deposit and withdraw funds from the account as they deem fit and can close or revoke the account at any time. When the depositor dies, any funds in the account automatically become the property of the beneficiary.

Documentation
Typically, the only evidence of the trust itself is the signature card signed by the trustee at the time the trust is opened. The signature card should read "JOHN DOE, Trustee for MARY DOE, beneficiary." The credit union should obtain sufficient identifying information about the beneficiary at the time of account opening to ensure that funds are paid to the proper person upon the death of the account owner. The taxpayer identification number on the account should be the social security number of the trustee.

Membership
The person creating the account must be eligible for membership in the credit union.

Death
Upon the death of the trustee, shares are payable to the beneficiary. The beneficiary has no right to the funds in the account until that time. If the beneficiary predeceases the owner of the account, the trust terminates.

Payment
The credit union makes payment to the trustee of the account during their lifetime. Upon the trustee’s death, the credit union makes payment to the beneficiary.

Share Insurance
Totten trust accounts are subject to the same deposit insurance provisions as revocable trust accounts. Detailed information about insurance issues for trusts may be found under the topic “Share Insurance ”.

Trusts (New Jersey): Definitions

Beneficiary
Any person entitled to receive any benefit from a trust.

Co-Trustees
Two or more trustees. If there are co-trustees, refer to the trust document to determine whether the co-trustees can act individually or if they must act together.

Grantor
The maker, creator, donor, settler, or trustor of a trust and the testator or testatrix of a will containing trust provisions.

Inter-Vivos Trust
A trust created during the lifetime of a person. It may be either a revocable trust or an irrevocable trust. An inter-vivos trust is sometimes referred to as a living trust.

Irrevocable Trust
A trust created under a written agreement (U/A) which ordinarily cannot be revoked or amended.

Living Trust 
An account held by a trust. It is not, in general, a trust account. A living trust is a separate legal entity which must qualify for and become a member of a credit union. In doing so, it establishes its own account at a credit union, is eligible for rights of membership such as voting, may borrow, and may be subject to such member obligations as set off, garnishments and levies.

Payable-on-Death Account (also known as a Totten Trust)
An account in which the funds pass upon the death of the owner to one or more named beneficiaries if living, or if deceased, to the account owner’s estate or the beneficiary’s estate (check your state’s law). Credit Unions should check the state's law to determine if this type of account is permissible.

Personal Representative
The person duly appointed by court order to administer the estate of a decedent.

Power of Attorney
An instrument authorizing another to act as one’s agent or attorney-in-fact whose power is revoked on the death of the principal by operation of law. Such power may be either general or special.

Revocable Trust
A trust created under a written agreement (U/A) which may be revoked by the grantor.

Testamentary Account
A revocable trust account, Totten trust account, or any similar account which evidences an intention that the funds shall pass on the death of the owner of the funds to a named beneficiary.

Testamentary Trust
A trust created by the last will and testament of a person.

Totten Trust
An account established for the purpose of designating a particular beneficiary to receive monies upon the death of a trustee. The account may be established in the name(s) of one or more individuals in trust for only one other individual (beneficiary). Funds belong solely to the trustee until death. Upon death of the trustee, funds become the property of the beneficiary. Until death of the trustee, the beneficiary may not have access to the funds.

Trustee
Refers to and includes a successor trustee and the person who holds title to trust assets, who manages the property of the trust and who makes distribution to or on behalf of the beneficiary.

Trusts (New Jersey): Checklist

To be in substantial compliance, all answers should be "Yes" unless they are not applicable.

Living Trusts as Account Holders

1. Membership Requirements
   1. Does the credit union's charter allow "organizations" or "associations?"
   2. Do the necessary parties to the trust fall within the field of membership?
   3. If not, does the credit union allow a living trust to be added as a joint owner?
       
2. Account Set-up - Documents Required
   1. Are standard credit union membership forms acceptable?
   2. Is a Certification of Trust needed? Does the credit union have a form for that information? (Or otherwise gather membership eligibility information)?
       
3. Account Ownership/Transactions
   1. Are only the trustee(s) allowed to transact on that account?
   2. Are all transactions required to be in trustee's representative capacity? Does the credit union adjust share draft authorizations accordingly?
   3. Are statements, agreements, etc. set up in name of the trust as specified on the certification?
       
4. Voting Rights
   1. Does the Trustee vote or designate an authorized voter?
       
5. Deposit Authorization
   1. Has the credit union revised direct deposit authorization forms so that payments in the name of the individual member are authorized to be deposited to the trust?
       
6. Taxpayer Identification Numbers
   1. Is the credit union using the TIN provided on the certification?
       
7. Share Insurance
   1. Are any member questions referred to the member's attorney or NCUA?
       
8. IRA Accounts
   1. Since a Trust cannot be an owner, does the credit union limit IRA trust ownership to individuals?
   2. Does the credit union add a Trust as beneficiary if the member requests?
       
9. Garnishments/Levies
   1. Does the credit union require that the Trust must specifically be named in order for a garnishment/levy to be effective?
       
10. Set-off
    1. Does the credit union only attach a lien if the trust itself is obligated on the transaction?

Living Trust as a Borrower

1. Existing Loans
   1. Personal property/vehicle titles must be transferred with credit union lien intact. Does the credit union have the trustee sign new security agreement?
   2. For real property, does the credit union have the trustee sign new trust deed or mortgage?
   3. Does the credit union make sure loan repayment source is either outside of the trust or that the trust has signed on loan note?
       
2. New Loans
   1. Does the credit union check the trust/certification for authority to borrow? If not, have the trustee's attorney verify authority to borrow.
   2. Does the credit union verify source of repayment is available from trust?
       
3. Claims upon Death
   1. Does the credit union evaluate whether to add trust to loan so the credit union can collect from trust in the event of the member's death?

Trusts (New Jersey): FAQs

Trusts (New Jersey): Laws & Regulations

• 12 CFR 745, Share Insurance

Additional Laws & Regulations

• New Jersey Statutes
  • New Jersey Credit Union Act
  • New Jersey Uniform Trust Code

Trusts (New Jersey): Additional Resources

• 12 CFR 701, Appendix A FCU Bylaws, Article III, Section 6
• Certification of Living Trust Form
• CFPB: Help for Trustees Under a Revocable Living Trust
• Declaration of Successor Trustee Form
• Instructions: Applications for Trust Accounts
• Request to Establish an Account for Trust

Trusts (New Jersey): Model Policies

CU PolicyPro contains the following policies which can be used to help you craft your own policy on this topic:

• Model Policy 2110: Accounts
  • 2210.10: Trust Accounts

Click to login if your credit union subscribes to CU PolicyPro.

If you're not sure if your credit union subscribes, contact policysupport@cusolutionsgroup.com for assistance.