Transferring Bank or Holding Company Stock to a Trust

Individuals who own shares of bank holding company (or bank) stock often consider transferring such shares to a trust for estate planning purposes. Since a trust is a separate entity, a transfer of bank or bank holding company shares to a trust can raise issues under the Bank Holding Company Act (BHC Act) and/or the Change in Bank Control Act (CIBC Act).

BHC Act Considerations

If the Federal Reserve finds that a trust is being operated as a business trust, it will be considered a “company” as defined by the BHC Act and potentially a bank holding company, depending on the number of shares it plans to acquire. Usually, individuals want to avoid a determination that a trust is a “company” due to increased regulatory compliance.

Generally, a trust is presumed not to be a “company” if the trust:

1. Terminates within 21 years and 10 months after the death of grantors or beneficiaries of the trust living on the effective date of the trust or within 25 years;
2. Is a testamentary or inter vivos trust established by an individual or individuals for the benefit of a relative, “exempt” charitable organization, or themselves (unless they are the sole beneficiary of the trust);
3. Contains only assets previously owned by the individual or individuals who established the trust;
4. Is not a Massachusetts business trust; and
5. Does not issue shares, certificates, or any other evidence of ownership.
   

In addition to these factors, the Federal Reserve reviews the nature and value of assets in the trust as well as whether the trust engages directly or indirectly through ownership in any business activities to help determine if it is being operated as a business trust.

CIBC Act Considerations

Any person acquiring control of a bank holding company or state member bank must give prior notice to the Federal Reserve. This requirement applies to trusts and their trustees. A notice under the CIBC Act will be required when the proposed ownership is 25 percent or higher or 10 percent or higher and no other shareholder controls more shares.

The Board of Governors has an exception to those requirements for certain transfers to testamentary trusts if the following factors are met:

1. The beneficiaries are members of the grantor’s immediate family;
2. The trust terminates upon the death of the grantor or within 21 years and 10 months after the death of individuals living on the effective date of the trust;
3. The trust contains only banking assets;
4. The trust contains assets from only one grantor;
5. The trust does not have shares, certificates, or any other evidence of ownership;
6. The trust has a sole trustee, who is usually the grantor;
7. The trust is revocable; and
8. The trust is not a Massachusetts business trust.

Because a trust’s status under the BHC Act and CIBC Act requires a close review of the trust instrument and its assets, we encourage individuals to contact staff of the Applications section prior to transferring shares to a trust. We can then decide if the circumstances warrant a review of the trust to determine whether any issues are raised under either the BHC Act or the CIBC Act. Our contact information is available here.