Given Bank As Its Trustee example essay topic

"Banks do not become constructive trustees merely because they entertain suspicions about the provenance of money deposited with them". 6/6. Banks have a long history in the human society that had constantly been changing throughout ages. Starting with the first banks in Venice when the merchants agreed to lend excessive funds to each other as well as borrow freely from each other and finishing with the modern day banking industry that is connected via the wireless internet with any other bank in the world, the banks seem to assume a very important role in our lives. The society had changed; so did the banks. What used to be the banks main purpose of existence in the past does not remain so any longer.

In the following essay I am going to speak about the banks that at present are not constructive trustees solely because they more and more often question the origin of the money deposited in them. I will furnish my essay with various educated findings and legitimate data, as well as express my personal opinion on the given matter. The main role of the bank is to take and accept the moneys. One can even remember a famous joke about a banker and his little son. The son asked his dad how his bank was making money. And the dad told his son to bring the piece of butter from the freezer and took it in the hand.

He said We take money (holding the butter in his hand) and Give away money (giving the piece of butter back to the son). This is exactly how we work. But what is the profit dad? asked his son in bewilderment. Here son, said his dad, look how greasy my hand and fingers had become. The same thing applies to the banks. The banks take the money at a lower rate and lend it at a higher rate.

The only thing the banks can hope for is that people who take the money indeed return it. Another role of the banks that existed in the given territory was to make sure people in that area can freely trade with each other. The bank would write a bankers acceptance paper that would be recognized by the other bank that the trade partner used and thus the trade would occur. It should be noted that the classical butter-like money making process is not the sole process of how the banks make nowadays. The banks as a matter of fact strive to be the global securities players, most of them acting as investment banks and brokerage firms (Wesson, 2001). Credit / debit cards is another area that belongs to the services section and certainly contributes to the banks profit generating process.

As a matter of fact, the banks in the past decades were so aggressively pursuing the profit that they provided virtually anyone in Great Britain or the USA with a credit card if desired. To the best of my knowledge there were even occurrences of people fabricating their names, and putting unemployed in the application form and still receiving the card (Maxam, 2002). As it can be seen from the statements above the banks in fact exist for the sole purpose of generating cash inflows in any society they are located. The important thing that used to hold true in the past and that now is certainly changing is the concept of confidentiality.

In other words, in the past the banks would take any money they were given and would remain grateful for any deposit. Yet at present, especially after the attacks of 9/11 when it became a public knowledge that the world largest terrorist organization had funds invested around the world-the concept of confidentiality starts to become unimportant. The Al Qaeda receives the funds from the Muslim charity around the world and subsequently deposits them on the anonymous accounts (yes, banks provide that) that further would be expatriated to the terrorist cells that need it the most and spent on the necessary acts. After 9/11 attacks the governments around the world attempted to somewhat control the banking industry that until that point neglected the dirty origin of the monies deposited by illegitimate industries engaged in women trafficking, terrorism, or drugs and weapon selling (Stone, 2002). In Britain, common law was the general law as accepted by the courts, not necessarily enacted into statutes, but in compliance with the local customs. Common law implies that, instead of heterogeneous local customs, there is a uniform law for all.

With respect to the law and legal procedure, the judge is governed by precedents established by similar cases in the past. This practice in England has gone on continuously for many centuries, making common law a living organism which gradually can be adapted to changing conditions. Speaking about trusts I would like to note that for a trust to be valid, it must involve specific property, reflect the settlers intent, and be created for a lawful purpose. (Black's Law Dictionary 1513 (7th ed. 1999) ). At the same time a trust is a "fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it".

(Restatement (Second) of Trusts, section 2). It should be noted that the trustee acts as a friend of its client and performs the following services. 1. SAVING ON INHERITANCE TAX: On death, the inheritance tax which would normally be assessed on the value of the shares would generally be eradicated. 2.

ASSET PROTECTION: Assets placed into trust are generally beyond the reach of creditors who might arise as a result of financial difficulties, divorce proceedings, litigation etc. 3. AVOIDANCE OF PROBATE: A trustee provides a means whereby assets can be smoothly passed on to the next generation without the disruption, delays, substantial costs, loss of confidentiality associated with the probate procedure which necessarily follows when assets are bequeathed by will. 4. CONTINUITY: Trustee provides a means whereby assets can continue to be administered in accordance with the wishes of the settler after his death so the weak can be protected from others and the spendthrift can be protected from himself.

5. LIFETIME TAX SAVINGS: During lifetime, substantial income and capital gains tax advantages may result from setting up the trust. Generally, it is beneficial if the trustee has an understanding of the needs of the settler (or client) and his family and possibly of the settlers business. Individual trustees should be expected to survive the settler. Corporate trustees should be qualified to do business in all jurisdictions where the settler has property. The nature of the settlers assets and businesses may sometimes require multiple trustees.

As it can be seen at this point of time a bank seems to be a rather useful institution because of its endless lifespan and corporate expertise. In addition, when selecting trustees, consideration should be given to the following questions: 1. Does the individual or institution have the experience and specialized knowledge necessary to handle investments and administrative requirements, including knowledge about fiduciary income tax returns? The banks seem to possess this knowledge and all proper expertise and experience in dealing with fiduciary responsibility before the shareholders and clients.

2. Can the individual or institution repay any damages if default or breach occurs? Yes, the banks can to that. 3.

What possible tax considerations attend the selection of the individual? There may be adverse income or estate tax consequences where a beneficiary is a trustee or co-trustee. Corporate Trustee is a perfect example of banks engaged in that industry, yet whether or not banks indeed should be used for trustee purposes we will see later in the paper. Here I would like to note that corporate trustees generally have expertise in asset management, record keeping, accounting and preparation of reports and tax returns.

Also, corporate trustees have perpetual existence and when dealing with the trust and its beneficiaries can act impartially. As a compensation for the diligent work corporate trustees require payment of fees for their expertise. It is prudent to inquire about the fee structure of a particular institution prior to naming it. Fees typically are based on a percentage of the value of assets being managed and tend to approximate 1% per annum of the principal value of the trust. In some states compensation of trustees and other fiduciaries is specified by statute (Maxam, 2002). A. Trustee's Powers. The Will or trust agreement should include broad administrative powers to assure the most efficient and economical administration of the trust assets.

Please take a look at some Useful Powers that can be freely given to the Trustee. a. Exercise tax elections. This is in my opinion a very useful method for engaging the banks expertise in tax accounting. b. Apply property for the benefit of a beneficiary. This power certainly lays in the grey area for the fact that it is hard to know what constitutes the benefit of a beneficiary. c. Real property management of the beneficiary. d.

Settle all legal claims. e. Allocate receipts between income and principal. f. Retain original property, regardless of its type or investment suitability. g. Broad investment authority. h. Sale and lease. i. Use of nominee form for registration of securities. j.

Lend and borrow. k. Employ agents and attorneys. l. Delegate powers to other trustees. m. Consent to corporate changes. n.

Rights and voting proxies. o. Continuation of business and Partnership interests. r. Distribute assets in kind, purchase and sell assets's. Consolidate multiple trusts or terminate the trust if it is uneconomical As it can be seen from the powers mentioned above a trustee be it a bank or an individual works as the best friend of the beneficiary who would therefore do everything only for beneficiary's interests. Apparently, a friend would not enquire his friend about the provenance of money deposited with them, while the banks have to do so to remain in compliance with the existing laws that discourage money laundering operations. Regardless of the definition of what constitutes suspicious activity, its concept still remains very vague (Stone, 2002).

The banks can consider your financial know-how technique or the money you withdraw to finance your daughters flight school to be suspicious activities and report it to the government, causing temporary account freezes and needless worries. If you have a business that is going to be managed by a trustee, the banks still may fail on the confidentiality because of the government requirements to report on business activities (Stone, 2002). The British common law as mentioned above assumes the fact that those activities that can be related to terrorism are within the concept of common knowledge, thus whatever the bank clerk thinks is suspicious is suspicious. Independent trust companies, on the other hand, are not required to be responsible for unveiling the unnecessary information about the clients thus acting as friends.

A friend is a person who would not turn you in even if they have suspicions about the origin of your money. Here I would like to add that for the reason of being independent of the government authorities and the banks that lobby the government to oblige the trustees become accountable to the same degree as the banks (otherwise the customers naturally choose those who do not turn in to the government on a daily basis), the trustees go off-shore. In the off-shore they cooperate with the off-shore banks, thus making the beneficiary's activities anonymous and well-protected. Another noteworthy fact that disproves the banks being a constructive trustee is the notion that the banks themselves are owed by someone be it a private individual or numerous shareholder, thus have to obey their rules and commands.

In other words, the bank is obliged to act in the best interests of its shareholders and in the best interests of its beneficiary who chose the given bank as its trustee. It is for this reason the conflict of interests arises inside of the bank that contributes to the reduction of efficiency within the bank and oftentimes to the compromised solutions that harm the interests of the banks shareholders and the beneficiaries. In conclusion I would like to say that banks, albeit still acting as a trustee to many individual beneficiaries, do not present the optimal solution to the customers interests. First of all being regulated by the government that strives to prevent the terrorist funding, the bank has to report all the suspicious activities of its clients and the clients money. Secondly, regardless of all the benefits that the institutional trustees can provide, the banks indeed have their own interests that if differ from their trustees interests can certainly lead to numerous conflicts and in compliance with the fiduciary responsibility before either the shareholders or the beneficiaries. Thus I would like to conclude that the banks do not make perfect trustees and the clients should make use of the existing institutional or private trustees that do not have any other obligations as the banks do; or the clients should even negotiate business with an offshore trustee, thus guaranteeing the confidentiality and absence of questions regarding the provenance of money deposited.