How Banks Handle Fiduciary Accounts
Trust and estate accounts are typically titled in the fiduciary's name followed by their role, such as "Jane Smith, Trustee of the Smith Family Trust." When a bank holds deposits under that kind of title, this statute governs what happens when the fiduciary writes checks against the account.
The rule is straightforward: the bank can honor the fiduciary's checks without investigating whether each withdrawal is proper. Banks are in the business of processing transactions, not policing fiduciary conduct.
If a deposit is made in a bank to the credit of a fiduciary as such, the bank is authorized to pay the amount of the deposit or any part thereof upon the check of the fiduciary, signed with the name in which such deposit is entered, without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing the check or with knowledge of such facts that its action in paying the check amounts to bad faith.
A.R.S. § 14-7506When the Bank Becomes Liable
There are two situations where a bank loses its protection. First, if the bank has actual knowledge that the fiduciary is misusing funds. Second, if the fiduciary writes a check payable to the bank itself to pay off a personal debt, and the bank knows this is a personal obligation rather than a trust or estate expense.
For families setting up a trust, this statute explains why banks generally process fiduciary transactions without asking questions. It also highlights why choosing a reliable trustee matters. The bank is not your watchdog. Oversight of the fiduciary falls to the beneficiaries, co-trustees, or the court.
