How Banks Handle Fiduciary Deposit Accounts
Trust and estate accounts are often titled in the fiduciary's name, such as "Jane Smith, Trustee." When a bank holds a deposit under that kind of title, this statute governs check withdrawals. The bank treats the fiduciary as the record holder.
The rule is simple: the bank can honor the fiduciary's checks without looking into each withdrawal. Banks process transactions. They do not police fiduciary conduct.
Why This Matters for Estate and Trust Planning
When a family sets up a trust, the trustee opens a bank account. The bank will process checks signed by the fiduciary without asking questions about each one.
If you are a beneficiary, this statute explains why banks do not monitor fiduciary behavior. Oversight falls to the beneficiaries, co-trustees, or the court. In other words, choosing a trustworthy fiduciary matters more than relying on the bank.
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
The bank loses its protection in two cases. First, if it has actual knowledge the fiduciary is misusing funds. Second, the fiduciary may write a check to the bank itself to pay a personal debt. If the bank knows it, the bank loses its protection.
For families setting up a trust, this is a key point. The bank is not your watchdog. Oversight of the fiduciary falls to the beneficiaries, co-trustees, or the court.