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Trust Department Policy and Procedures
INTRODUCTION
The board of directors has the overall authority and responsibility for operating the trust department and
administering fiduciary accounts. This administrative responsibility begins with the acceptance of an
account and continues until the closing of the account. In discharging its authority, the board of directors
may delegate duties and responsibilities to such committee(s), director(s), officer(s), employee(s), or legal
counsel as it deems appropriate. However, the board retains ultimate responsibility for delegated matters
and must maintain the proper degree of control and supervision.
The board of directors and management of [insert the name of your bank] adopt the following trust
department policy and procedures.
POLICY STATEMENT
The board adopts this statement to further sound banking practices in the operation of a trust department
and to provide safeguards for the protection of depositors, fiduciary beneficiaries, creditors, stockholders,
and the public.
The trust department will operate separate and apart from every other department of the bank, with trust
assets separated from other assets owned by the bank, and the assets of each trust account separated from
the assets of every other trust account; and will maintain separate books and records for the trust
department in sufficient detail to properly reflect all trust department activities.
The board of directors may act as the trust committee and/or appoint additional committees and officers to
administer the operations of the trust department. When delegating duties to subcommittees and/or
officers, the board and the trust committee continue to be responsible for the oversight of all trust
activities. Sufficient reporting and monitoring procedures should be established to fulfill this
responsibility.
The board of directors of [insert the name of your bank] appoints [insert the name and/or title] as the
senior trust officer to be responsible for and administer the activities of the trust department.
The board further appoints the following directors to the trust committee:
•
[insert the name of the director]
•
[insert the name of the director]
•
[insert the name of the director]
The committee will be responsible for and supervise the activities of the trust department.
The trust committee will meet at least quarterly and will:
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Approve and document the opening of all new trust department accounts
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Approve and document all purchases and sales of and changes in trust assets
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Approve the closing of trust accounts
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Provide for a comprehensive review of all new accounts after acceptance
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Provide for a review of each trust department account, including collective investment funds, at
least annually
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Keep comprehensive minutes of meetings
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Report to the full board periodically
The trust committee and the full board of directors direct trust management to develop and implement
comprehensive written policies which address all areas of the trust department activities. The trust
committee will also engage competent legal counsel to advise trust officers, the committee, and the board
on legal matters pertaining to fiduciary activities.
The [insert either your internal audit department or an external firm] will conduct an annual trust audit.
The results of the audit and corrective action, if necessary, will be reported to the trust committee and
then by the committee to the full board of directors.
Only through its written records can the board demonstrate that it has satisfactorily delegated duties to
duly appointed committees.
ACCEPTING NEW TRUST ACCOUNTS
Formal acknowledgment of new accounts should be noted in board or committee minutes. Management
should delineate standards for the acceptance of new business to control potential risks. The standards
should define criteria for accepting or declining new business, given management’s administrative
capabilities. The ability of the trust institution’s staff, systems, and facilities to handle the proposed duties
must be considered when accepting new accounts.
Other areas for consideration include, but are not limited to:
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Purpose of the account
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Identity of principals and beneficiaries
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Existence of, or potential for, conflicts of interest
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Complexity of provisions
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Composition and nature of assets
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Existence of administrative problems
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Profitability
APPROVAL OF CLOSED ACCOUNTS
Closed accounts should be reviewed to determine if the responsibilities under the instrument have been
properly discharged and account administration was in accordance with the department's policies and
procedures. The improper administration of an account can potentially expose the bank to reputation risk
and financial liability. A significant increase in the number of closed accounts may be indicative of other
underlying operational or administrative issues. Formal acknowledgement of closed accounts should be
noted in the board or committee minutes, along with the reason the account was closed. Furthermore, trust
department records must contain receipt for assets transferred from the successor trustee, administrator, or
beneficiaries.
DISCRETIONARY DISTRIBUTIONS, REALLOCATION OF PRINCIPAL AND INCOME,
EXTRAORDINARY EXPENDITURES, AND OTHER MATTERS
The authority to grant discretionary distributions or reallocate principal and income is one of the most
important powers vested in a fiduciary. [This is also dependent on state law. Consult your state’s law in
this area.] Documentation of the approval of discretionary distributions or principal and income
reallocations and denials shouldbe retained in the individual account file to support ongoing
administrative responsibilities. In the same manner, extraordinary expenditures should be approved by the
board or a delegated committee. The reasons for the expenditures and any communication with interested
parties should be documented in the trust files.
The authority to grant discretionary distributions or reallocate principal and income are two of the most
important powers vested in a fiduciary. The exercise of power is delegated to the bank’s trust committee,
and approval or ratification of significant discretionary or reallocation actions will be noted in the
committee minutes and reported to the full board at their regular meetings. Documentation of the approval
of discretionary distributions or principal and income reallocations, and denials should be retained in the
individual account file to support ongoing administrative responsibilities. In the same manner,
extraordinary expenditures will be approved by the trust committee. The reasons for the expenditures and
any communication with interested parties should be documented in the trust files.
INVESTMENTS
To the extent the bank has investment discretion, the board and trust committee delegate trust purchases
and sales to senior trust department management. Management is directed to review investments weekly
or monthly, depending on the volume of trades and the trust accounting system utilized. The suitability of
assets held by each individual account should be incorporated into the account’s annual investment
review.
REGULATION R — BANK AND TRUST DEPARTMENT SECURITIES ACTIVITIES UNDER
THE GRAMM-LEACH-BLILEY ACT OF 1999 (PL 106-102 GLBA)
It is the policy of this bank to comply with Regulation R (12 CFR 218) so that we can conduct securities
transactions in a trustee or fiduciary capacity and not be considered a broker/dealer. In order to be
exempt, management is directed to ensure that we are “chiefly compensated” for those transactions on the
basis of specifically enumerated types of “relationship compensation.” Management must maintain
records and documents to establish and support our internal “chiefly compensated” calculation. We may
choose one of two methods. Both methods use a two-year rolling average comparison, beginning on the
first day after the end of our fiscal year. If we choose the bankwide approach, “relationship
compensation” must be at least 70 percent of total fiduciary compensation. If we use the account-byaccount approach, “relationship compensation” must exceed 50 percent of total compensation for each
account.
“Relationship compensation” consists of the following:
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An administration or annual fee
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Revenues based on a percentage of assets under management
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A flat or capped processing fee that does not exceed the cost the bank incurs in executing such
securities transactions
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Any combination of such fees
Safekeeping and Custody Exception
We can continue the duties and services in connection with safekeeping and custody arrangements.
Regulation R provides two exemptions under which banks can continue to accept orders for securities
transactions from customers. One exemption applies to orders for securities transactions that are received
from employee benefit accounts, IRAs, and similar accounts. Another exemption is provided for
accepting orders from other custody customers on an accommodation basis. For employee benefit, IRA,
and similar accounts, the bank may accept orders if we:
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Do not advertise order taking
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Do not compensate any bank employee based on whether or not a securities transaction is
executed, or on the quantity, price, or type of the security
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Are not a trustee or a fiduciary other than a directed trustee
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Are not a carrying broker
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Comply with the trade execution requirement in 12 CFR 218.760
When a third party bank is an employee benefit and/or IRA custodian, if we act as a non-fiduciary
administrator/recordkeeper we may rely on the exemption if:
•
Both the custodian bank and the administrator/recordkeeper bank comply with the exemption,
and
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The administrator/recordkeeper bank does not execute cross trades other than those specified in
the regulation
For all other accounts, a bank may accept orders only as an accommodation to the customer if:
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Any fee charged does not vary based on whether or not the order is accepted or on the quantity or
price of the security
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Advertisements and sales literature do not state that the bank accepts orders except as part of
describing other aspects of its custodial services
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The bank does not provide investment advice or research, make recommendations, or solicit
transactions
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The bank complies with the trade execution and compensation requirements that apply to
employee benefit, IRA, and similar accounts
INSURANCE COVERAGE
Although insurance does not compensate for poor operational controls or the absence of proper oversight,
the board has a responsibility to maintain sufficient coverage for the risks inherent in the fiduciary
business. Furthermore, the board directs management to periodically review the policies for continued
suitability and report to the board and trust committee at least annually.
TRUST OFFICER DUTIES AND MANAGEMENT SKILLS
Administrative duties of the trust officer include, at a minimum, the following:
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Represent the institution in all fiduciary matters
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Oversee administration of trust department accounts
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Report all matters requiring its attention to the trust committee
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Execute policies and instructions of the directors and the trust committee
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Maintain adequate records, such as entries, settlement sheets, and follow-up systems
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Maintain adequate documentation to ensure all assets are properly safeguarded
The managerial skills of the senior trust officer/trust department manager will be evaluated in
consideration of the following areas:
 Planning. A trust officer should establish a predetermined course of action. This includes setting
both short-term and long-term objectives and establishing policies, procedures, and programs to
reach these objectives.
 Organizing. A manager, along with the directorate, should establish an organizational structure
designed to achieve the department's goals. The grouping of these activities, delegating of
authority to perform these activities, and providing for coordination of relationships in the
organizational structure should be analyzed.
 Staffing. Management should employ a sufficient number of qualified employees. This involves
effectively recruiting, training, and retaining employees.
 Directing. Management should provide ongoing guidance and supervision of trust personnel to
achieve the trust department's stated objectives.
 Controlling. Management should review, evaluate, and regulate the work in progress to ensure
the activities meet established plans.
RISK MANAGEMENT
The board of directors directs management to prepare and present a formal risk management program
established to identify and control fiduciary risk. An effective risk management program guards against
liability that can result from lawsuits or poor administrative practices and identifies those areas where
there is potential for exposure. Risk tolerance levels should be clearly set and monitored by both senior
management and the trust committee. The program should be reviewed continuously and revised to
capture current and anticipated business risks. It will be presented to the full board for approval at least
annually.
At a minimum, an effective risk management program should:
 Establish the level of risk that management is willing to assume. Emphasis should be placed on
reviewing the planning process, policies related to the process, and underwriting standards of
accounts and new products.
 Identify the various risks associated with the institution’s key products and services, and its
operating environment. This includes an analysis of methods employed in determining fiduciary
insurance coverage, loss reserves, and the impact of fiduciary risk on capital adequacy. Litigation
concerns should also be analyzed.
 Implement adequate controls and monitoring systems. This includes establishing a system of
checks and balances, reviewing audit coverage, the compliance management system, and the
overall scope and reliability of existing management information systems.
 Supervise operations and the implementation of procedures when new accounts are obtained.
Guidelines should provide information as to day-to-day management offiduciary activities,
operating systems, and internal controls.
WATCH LISTS
Management will develop a written watch list of accounts and assets meriting special attention, which
provides a measure of control that can assist the department in limiting contingent liability and mitigating
loss. The watch list will be comprehensive, well documented, and periodically reviewed by the trust
committee. Management actions, including decisions made, contacts with interested parties, and legal
discussions, should also be noted and documented in writing.
At a minimum, the watch list will:
•
Identify trust accounts, groups of trust accounts, or assets that warrant the special attention of
management
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Provide a summary of each account or asset identified, indicating the reason(s) why the particular
account or asset merits special attention, and to the extent feasible, quantify the amount of risk
Accounts or assets that involve pending or threatened litigation, customer complaints, waived fees,
criticisms by regulatory authorities at prior examinations, large overdrafts, default or bankruptcy, or other
situations may warrant inclusion on the department’s watch list.
Finally, watch lists also serve as a valuable reference point for examiners who can compare the findings
of their own account review with the accounts identified by management as warranting special attention.
This should assist examiners in assessing the adequacy of the risk management program. Finally, reliable
watch lists can be used by examiners to determine the scope of account review.
ACCOUNT REVIEW
The trust committee should review each trust account initially upon acceptance and at least annually
thereafter. The annual review should incorporate an administrative review, and a review of investments,
when the department exercises investment discretion. The scope of the annual review will be addressed in
appropriate written policies which give consideration to the department's fiduciary responsibilities, the
type and size of accounts, and other relevant factors.
New Account Review Program
The initial review of new accounts for which the bank has investment responsibility will be conducted
promptly following acceptance. The review will be completed no later than 90 days after account
opening. The initial review will establish an investment program consistent with the needs and objectives
of the account and ensure that the synoptic record is complete and accurate.
Ongoing Annual Reviews
An account review will cover the administration of the account (administrative review) and the suitability
of the account’s assets (investment review).
Scope of Reviews
 Collective Investment Funds. The review of collective investment funds should include both an
administrative and an investment review. The administrative review should ensure that the
operation of each collective investment fund complies with applicable laws, regulations (e.g.,
OCC Regulation 9 (12 CFR 9), SEC regulations, ERISA and DOL regulations, the Internal
Revenue Code and IRS regulations, etc.), and standard industry practice. The investment review
should ensure that investments are consistent with the stated investment purpose of each fund.
Fund performance for each collective investment fund should also be included in the annual
review.
 Discretionary Personal and Employee Benefit Accounts. In personal and employee benefit
accounts where the institution has investment discretion, an account review generally should
consist of both an administrative and investment review. The administrative review will differ
according to the type and purpose of a given account.
 Nondiscretionary Personal Accounts. The account review should primarily focus on the
appropriateness of account administration, which will differ according to the type and purpose of
a given account. There may be no requirement or responsibility to review investments, but as in
all nondiscretionary accounts, a corporate fiduciary may be held accountable for the actions of a
co-fiduciary, due to bank's professional corporate trust status.
 Nondiscretionary ERISA Employee Benefit Accounts. Review of self-directed employee benefit
accounts is normally limited to coverage of administrative matters. These will differ according to
the type of responsibilities (such as participant recordkeeping, participant loan programs, etc.)
administered by the bank. In these accounts, a cursory review of the investments is also in order
to avoid flagrant violation of the insider and prohibited transaction provisions of ERISA. Trustees
directed by named fiduciaries have liability to determine whether directions are proper, meaning
that they are in accordance with the plan and not contrary to ERISA and/or applicable
regulations.A corporate fiduciary is held to a higher standard because of its purported knowledge
and expertise in fiduciary matters.
 Nondiscretionary non-ERISA Employee Benefit Accounts. These accounts are generally
sponsored by church organizations or state, county, or municipal governments and their agencies.
Only the administrative reviews, as covered above for nondiscretionary ERISA employee benefit
accounts, need to be performed.
 Self-Directed IRA and Keogh Accounts. Self-directed IRA and Keogh accounts are considered
trust accounts under Internal Revenue Code, section 408(h). Therefore, examiners should ensure
that an administrative review is performed and that proper controls are in place to limit liability.
 Custodial Accounts. Although custodial accounts are not always considered fiduciary accounts
(the classification depends on state law), administrative reviews should be performed on all
custodial accounts. This also applies to custodial accounts for ERISA employee benefit plans.
Management has the responsibility of ensuring that custodial relationships are being administered
in accordance with signed agreements.
 Discretionary Corporate Bond Trusteeships. Bond indentures for corporate and municipal debt
issues (bonds, debentures, notes, etc.) usually delineate how available funds are to be invested.
Nonetheless, the bank may have discretion in selecting the actual investments. In such cases, the
investments held for the account should be reviewed, as well as the administration of the account.
 Nondiscretionary Corporate Bond Trusteeships and Agencies. These accounts generally involve
corporate and municipal debt issues, securities transfer agencies, paying agencies, etc. Since there
are either no assets on hand, or the bank has no discretion over their investment, only
administrative reviews need to be conducted.
Content of Account Reviews
A comprehensive account review includes both an administrative and an investment review.
Administrative Review
An administrative review may include, but is not limited to, the following items:
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Governing instrument (trust, will, plan, indenture, etc.) — Is a copy on file?
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Synoptic record — Is the record complete, accurate, current, and reliable?
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Tickler system — Is the system up-to-date and accurate?
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Cash transactions — Are remittances, disbursements, and overdrafts posted correctly to income
and principal? Is there any evidence of unusual cash flow activity, such as free riding? Is there
any suspicion of money laundering? If so, has management filed or considered filing a Suspicious
Activity Report (SAR).
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Securities transactions — Were appropriate approvals and authorizations obtained for
nondiscretionary and discretionary transactions? As applicable, were confirmations sent within
the prescribed time frames? Did the confirmations or account statements contain the appropriate
disclosure documentation?
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Own-bank and affiliate obligations — Are purchases properly authorized?
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Accounting and statements — Are they accurate and timely?
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Commissions and fees — Are they accurate, consistent with the established fee schedule, and
being collected?
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Co-fiduciary approvals/denials — Are approvals/denials documented?
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Committee approvals/denials — Are approvals/denials documented?
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Internal policies and procedures — Is the account in compliance?
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Complaints — Are complaints by grantors, beneficiaries, plan administrators, etc. being
reviewed? Have previous complaints been resolved?
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Criticisms — Is corrective action being taken with regard to criticisms noted by internal and/or
external auditors and regulatory authorities?
Investment Review
At a minimum, information considered necessary to perform an investment review includes:
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Investment powers authorized by the trust instrument and/or governing law
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Investment objective of the account (income, growth, etc.)
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Listing of account assets reflecting cost and market values
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Projected yields on individual assets
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Projected income of the overall account
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Amount of principal and income cash on hand
An investment review may include, but is not limited to, the following items:
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Investment objectives — Are they consistent with the objectives of the trust? Are assets held
consistent with the chosen investment objectives and/or asset allocation models?
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Diversification of discretionary investments — Is the account properly diversified consistent with
either the Prudent Investor Act or Prudent Man Rule.
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Concentrations — Are there any undue concentrations, either within a type of security, industry,
or specific obligation?
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Own-bank or affiliate obligations — Is the purchase appropriate, yield adequate, and
authorization documented?
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Investments in companies related to, or loans made to, bank insiders — Are there any conflict of
interest or self-dealing concerns?
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Approved hold, buy, and sell lists — Is the account in compliance?
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Maturity of assets — Are there excess funds invested in short-term (lower yielding) investments?
Is there adequate liquidity?
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Asset valuations — Are assets (including real estate, limited partnerships, closely held businesses,
real estate syndications, and derivatives) valued accurately?
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Insurance coverage — Is it adequate?
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Environmental risk factors — Are there any environmental risk concerns?
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Complaints — Are complaints by grantors, beneficiaries, plan administrators, etc. being
reviewed? Have previous complaints been resolved?
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Criticisms — Is corrective action being taken in regards to criticisms noted by internal and
external auditors and regulatory authorities?
COMPLIANCE WITH THE USA PATRIOT ACT
In October, 2001, Congress passed the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act, known as USA PATRIOT Act (PL 107-56). The
purpose of the act is “to deter and punish terrorist acts in the United States and around the world, to
enhance law enforcement investigatory tools, and for other purposes.” New provisions of the Bank
Secrecy Act (BSA) (12 USC 1951, 31 USC 5311, 31 CFR 1010, 31 CFR 1020) are intended to facilitate
the prevention, detection, and prosecution of money laundering and the financing of terrorism.
Our bank is required to implement a customer identification program (CIP) and establish reasonable
procedures to:
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Verify the identity of persons seeking to open an account.
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Maintain records of information used to establish the identities of customers.
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Determine whether any persons seeking to open an account appear on lists of known or suspected
terrorists or terrorist organizations. As of the date of the most recent Trust Manual revision, there
is no officially approved list of known or suspected terrorists or terrorist organizations.
Note: For purposes of the law, a customer includes all persons that open accounts. It does not include
existing customers if bank management is satisfied of the identification of the account holder.
Furthermore, a person includes a trust, but does not include the beneficiary of the trust.
The definition of an account specifically includes asset accounts and accounts established to provide cash
management, custodian,or trust services. However, the definition does not include accounts opened for
the purpose of participating in employee benefit plans established under ERISA.
Following is the minimum required identification information for the CIP when opening an account:
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Name
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TIN (tax identification number or social security number). There is a TIN exception for a
business that has recently applied for, but has not received a TIN. The bank can open the account
without the TIN for a reasonable time period; however, the bank must follow up to obtain the
TIN.
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For individual — date of birth
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For individual — residence, if different, mailing address
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For corporations, partnerships, and trusts — principal place of business and, if different, mailing
address.
In order to verify the identity of a person other than an individual opening an account, various documents
could be used to show the existence of the entity, including articles of incorporation, government-issued
business licenses, partnership agreements, or trust instruments.
[Insert your specific CIP for trust here or refer to your overall BSA policy for trust CIP.]
FEE CONCESSIONS TO INSIDERS
[Note: It is a common fiduciary practice for management to grant fee discounts to fiduciary clients. Such
discounts are usually offered as either fee concessions or compensating balance arrangements. Your trust
department’s policy should clearly describe to whom and for what purpose discounts will be allowed, the
types of services which may be involved, and the method by which the trust department may be
compensated by the bank for such discounts.
If your practice is to charge reduced fees to directors, officers, employees, shareholders, or their interests,
that practice should be in writing and approved by the board.
Fee concessions are acceptable, provided:
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They are consistent with the marketing and profitability objectives
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The trust department will operate at a profit after the fee concessions are granted
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The fee concessions are awarded under a uniform and nondiscriminatory policy to all directors,
officers, and employees of the bank
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The fee concession policy is approved by the board of directors]
The board of directors approved and adopted this policy on ________________________.