Last Updated on May 11, 2022 by Fair Punishment Team
Suppose a bank, third-party lender, or financial institution makes a loan that’s supported by a trust. In that case, it’s their responsibility to verify that the trust has the authority to borrow money, pledge assets, and more.
Most of this evidence can be found in the trust instrument – a document that acts as a formal declaration of the trust or the trust agreement.
However, this process can be lengthy. It’s also an incredibly detailed document, and the trustee or trust beneficiaries may not wish to divulge such personal information to the lender.
If the trust or the trustee was to use the trust instrument and omit certain information, the due diligence process can cost a significant amount of time and money, benefiting no one. This is where the certification of trust comes in.
What Is Trust Certification?
Essentially, a trust certification is a condensed version of the trust instrument. A trust certification document will only list the trust’s most important terms and verify its legal authority.
It can also confirm the existence of the trust without divulging private information that isn’t relevant to the lender. Ultimately, it’s a way to give the lender what they need while protecting the privacy of the trustee.
What Information Does The Trust Certification Include?
Trust certification requirements may vary by state; however, most trust certifications will include the following information:
- The trustee’s name
- The official name for the trust
- The reason for the trust’s existence
- The country where the trust was founded
- Note the creation of the trust and any changes made to its original form
- If the trust is revocable, it will explain who is entitled to revoke
- Trust identification number (which may be a social security number or a tax identification number)
What Is A Trustee?
A trustee is appointed by the grantor (the person who creates the trust) to manage the finances of the trust. Essentially, they’ll hold the legal title of a particular asset (or assets) on behalf of another person.
In law, they’ll be the legal owner of the title to the contents of the trust, and as a result, they’ll be expected to live up to the trust expectations, or as it’s known in law, fiduciary duties. If they fail to do this, the court may take over and select a new individual to take the role.
This legal responsibility can vary according to the criteria the trust defines. For example, a trust may nominate a trustee to oversee record expenses, file taxes on any income earned by the trust, distribute earnings or funds to the appropriate beneficiaries, and more.
Trust Certification: State Requirements
Certification requirements vary by state, and not all states have statute sections on their certificates. However, if you’re working with a trust certification in the following states, institutions are required to accept the certification. They may face financial or legal penalties if they don’t.
- Arkansas: Ark.Rev.Stat. § 28-73-1013
- Arizona: Ariz.Rev Stat. s § 14-11013
- Alabama: Ala.Code §§ 19-38-1013
- California: Cal.Prob.Code § 18100.5
- District of Columbia: DC. Code Ann. § 19 – 1310.13
- Delaware: 12 Del. Code Ann. § 3591
- Florida: Fla.Stat.Ann § 736.1017
- Indiana: Ind. Code § 30-4-4-5
- Idaho: Idaho Code §68-115
- Iowa: Iowa Code § 633A.4604
- Kansas: Kan. Stat. Ann. § 58a -1013
- Mississippi: Miss. Code Ann. § 91-9-7
- Maine: Me. Rev. Stat. tit. 18-B, § 1013
- Michigan: Mich. Comp. Laws Ann. § 565.432
- Minnesota: Minn.Stat § 501B.56
- Missouri: Mo. Rev. Stat. § 456.10-1013
- New Mexico: N.M. Stat. Ann. § 46A-10-1013
- Nevada: Nev. Rev. Stat. §164.410
- Nebraska: Neb. Rev. Stat. § 30-38, 102
- New Hampshire: N.H. Rev. Stat. Ann. § 564-B:10-1013
- North Carolina: N.C. Gen. Stat. §36C-10-1013
- North Dakota: N.D.Cent.Code §59-18-13
- Oregon: Or.Rev.Stat §130.860
- Ohio: Ohio Rev.Code §5810.13
- Pennsylvania: 20 Pa. Cons. Stat. Ann. §7790.3
- Rhode Island: R.I. Gen. Laws §34-4-27
- South Dakota: S.D. Cod. Laws Ann. §55-4-42
- South Carolina: S.C. Code Ann. §62-7-1013
- Texas: Tex. Prop. Code §114-086
- Tennessee: Tenn. Code Ann. §35-15-1013
- Utah: Utah Code Ann. §75-7-1013
- Wyoming: Wyo. Stat. §4-10-1014
- West Virginia: W.V.a. Code §36-1-4a
- Virginia: Va.Code §55-550.13
How Do You Get A Trust Certification?
If you want to create a certificate of trust, you’ll have two options: contact an attorney to draw up the paperwork or use an online legal service to handle the process for you. Remember: to sign a Living Trust, you’ll need a Notary Public to witness this.
What Is A Notary Public?
In the U.S, a notary public is a state government-appointed individual who witnesses the signing of official documents, including certificates of trust, letters of authorization and consent, and more.
Most records will need to be notarized under state law, but many documents require notarization under federal laws, such as US Passports to under 16’s, which require a notarized statement of consent.
One of the most popular ways to get a document notarized is at a local UPS store center. Notarization services are offered at over 5,000 locations, and you’ll just need to bring a valid government ID.
Alternatively, you can get your trust certification or other legal document notarized through the U.S embassy or by a bank, a law firm or office, a real estate firm or office, or an accountant’s office.
What Assets Are Used To Create A Trust?
A public corporation usually issues trust certifications. This public corporation is backed by external assets that act as collateral.
If the company fails to keep up with its payments for any reason, these assets can be withheld and eventually sold to help the holders of the trust certificate recover some of their investment. The assets used to create a trust can vary. In most cases, they’re company stock or company equipment.
What Happens If A Company Goes Bankrupt?
If a company goes bankrupt, its aforementioned assets will be shared between lenders and shareholders. Individuals who have taken the least risk with the company (usually creditors and investors) will be paid first.
These low -risk individuals also include those who have bought trust certificates and secured debt.
Are Trust Certificates Safe For Investors?
In most cases, trust certificates are an incredibly safe option for investors. They’re a more popular option than unsecured or uncollateralized bonds, which are riskier and can carry higher interest rates, and must be repaid in ways that don’t involve seizing collateral.
Tips For Investors
If you’re considering investing in a trust certificate, tread carefully. The process can be complex and lengthy, and it requires a thorough understanding of a company’s financials and the security of the asset underpinning the trust certificate.
If an asset is the same as the company’s stock, the risks can be even more significant. If the company experiences financial difficulty, then the asset can quickly become worthless.
To make a safe investment, investors should analyze the certificate carefully. A thorough financial analysis should be performed, and the risk profile assessed.
A company’s income statement or cash flow statement can provide all the information you need.
Do You Need To Update A Certificate Of Trust?
There may be instances where you need to update your certificate of trust.
For example, if a trustee passes away, or if your trust hasn’t been updated in several years and there have been many internal changes.
You may also need to update your certificate of trust if you’re buying or selling real estate. For more information, talk to your attorney or legal firm.
If you want to protect your assets or provide for your loved ones, owning a trust can be a valuable investment. Creating a certificate of trust is just one of many things you’ll need to do when setting up a trust.
Remember: performing financial research and consulting with a legal professional should be at the top of your list. Talk to a professional to find out more about creating a trust certificate, starting a trust, or investing in a trust.