New York Codes, Rules and Regulations › Title 3 - BANKING › Legal Interpretations › LI 4 - Savings Banks and Savings and Loan Associations › Section LI 4.18 - Checking accounts for the account of fiduciaries; checking accounts in the form of totten trusts

Current through Register Vol. 46, No. 28, July 10, 2024
The department was asked whether an individual serving as a
				  fiduciary under a will or trust instrument may open a checking account at a
				  State-chartered savings bank or savings and loan association. The department
				  was also asked whether an individual may open a checking account in the form of
				  a "totten trust".
The department responded that an individual fiduciary for an
				  individual beneficiary could maintain a demand deposit at a mutual institution,
				  if such trust is not for a business purpose and subject to compliance with
				  Banking Law Section 237.1. The department also replied that demand deposits
				  could be maintained in the form of totten trusts.
Section 237.2 of the Banking Law, as recently amended,
				  prohibits a savings bank from accepting "any deposit for credit to a municipal
				  corporation or for credit to any partnership, corporation, association or other
				  organization for profit, or any demand deposit for credit to any depositor
				  except a natural person". Section 380.13 of the Banking Law, as amended,
				  imposes a similar restriction upon savings and loan associations.
The quoted language would cleraly prohibit a corporate
				  fiduciary from opening a checking account at a mutual institution. It would
				  also prohibit an individual who serves as trustee for a corporate account from
				  opening a checking account, since the corporation would be the beneficial owner
				  of the funds. The issue, therefore, is whether the language quoted would permit
				  an individual serving as a fiduciary for another individual to open a checking
				  account at a mutual institution. This, in turn, depends upon the Legislature's
				  intent when it adopted Sections 237.2 and 380.13 of the Banking Law. Sections
				  237.2 and 380.13 were enacted by Chapter 225 of the Laws of 1976. The language
				  of the two sections was derived, in large measure, from the language contained
				  in A. 11147/S. 8626, which was a Banking Department bill which included
				  checking as well as personal loan powers. During the Legislature's
				  consideration of A. 11147 and of A. 12452-A, which was subsequently enacted as
				  Chapter 225 of the Laws of 1976, the Banking Department repeatedly emphasized
				  that the bills would not affect the commercial banks' monopoly on commercial
				  checking accounts and that the bills were not intended to permit mutual
				  institutions to offer checking accounts for business or commercial uses. The
				  department also stated that checking account powers would further the
				  restructuring of the thrift industry and would be the first of the steps
				  necessary toward the transformation of thrift institutions into family banking
				  centers.
An examination of relevant provisions of law suggests that
				  certain trusts do not constitute business instruments and that the trustees of
				  those trusts may open a checking account with a mutual institution without
				  violating the purpose of Section 237.2, as understood by the Legislature. More
				  specifically:
1. A checking account in
				the name of the trustee for a non-business trust is compatible with--and
				furthers--the concept of the mutual institution as a family banking
				center.
2. As indicated above,
				Section 237.2 of the Banking Law prohibits savings banks from accepting
				deposits from municipal corporations, partnerships, corporations and other
				organizations for profit and, in the case of demand deposits, from any person
				other than a natural person. The section does not include trusts or trustees
				within its language. Construing "natural person" in such a way as to include
				individuals who serve as fiduciaries for non-business trusts would be
				consistent with such other subdivisions of Section 237, as subdivision (1).
Former subdivision 1 of Section 237, repealed in 1971, set a
				  ceiling on the amount of deposit which a savings bank could accept from "any
				  person". The statute excluded certain sums from such deposits, including
"(b) All amounts credited to him as
				trustee under a voluntary trust, unless the aggregate of all such amounts,
				exclusive of dividends or interest, is in excess of twenty-five thousand
				dollars in which event not more than twenty-five thousand dollars may be
				excluded.
(c) All amounts standing
				to his credit as executor, administrator, trustee, committee or guardian, named
				in a will or appointed by a court of competent jurisdiction."
At the time former subdivision 1 was repealed, subdivision 2
				  of Section 237 was renumbered subdivision 1. The renumbered subdivision 1
				  specifically permits certain kinds of trustees to open an account in the name
				  of the trustee. The subdivision reads as follows:
"No savings bank shall accept any deposit for credit to any
				  executor, administrator, trustee, committee or guardian, named in a will or
				  appointed by a court of competent jurisdiction, unless a certified copy of the
				  will, order or decree of the court authorizing such deposits or appointing such
				  executor, administrator, trustee, committee or guardian, or a certificate of
				  such appointment is filed with the savings bank."
Presumably, the current version of subdivision 1 of Section
				  237 was retained to insure that trust funds be counted separately, as provided
				  in former subdivision 1 of Section 237.