Trust Assets

May 16, 1995

The Honorable Hal D. Lingerfelt Commissioner of Banks

P.O. Box 29512 Raleigh, N.C. 27626-0512

Re: Advisory Opinion — Trust Assets (N.C.G.S. § 53-122)

Dear Commissioner Lingerfelt:

This will respond to your recent request for an advisory opinion regarding the assessment for trust assets pursuant to N.C.G.S. § 53-122.

You indicate that the former Commissioner of Banks, William T. Graham, advised all state chartered banks (exercising trust powers) and nondepository trust companies, licensed between the years 1991 through 1993, that some institutions may have overpaid their trust assessments by showing as "trust assets" items which, in his view, were not such assets. Former Commissioner Graham cited as an example assets held in custodial, safekeeping, escrow, managing agency, and non-custodial advisory accounts.

Next, you indicate that Former Commissioner Graham advised eight financial institutions, that submitted requests for refunds, that their claims had been verified for the periods in question and that refunds would be made by way of a rebate against the banks’ 1995 assessments.

Finally, you advise that trust assessments are used by your agency to compensate for the cost of trust examinations and that these examinations include a review of all trust activity, including the fiduciary account relationships excluded by former Commissioner Graham (as set forth above).

THE ISSUES

Based on the foregoing facts, together with the information you included with your request, you have raised the following issues:

(1)

Whether or not the reference in N.C.G.S. § 53-122(1) to "trust assets" can be construed to include all investments, except real property, held and managed by the trust department or a trust company, for the purposes of calculating trust assessments?

(2)

Whether or not your agency is required to refund trust assessment fees as outlined by former Commissioner Graham in his letters of January 10 and 18, 1995 (i.e., a credit against a bank’s 1995 assessment for the amount he deemed to be an overpayment)?

For the reasons set forth below, it is our opinion that you may construe N.C.G.S. § 53-122(1) to include all assets, except real estate, held by a bank in a fiduciary relationship. This is the interpretation that the Office of the Commissioner of Banks has consistently taken for more than sixty years, without challenge by any of the banks or trust companies. If you choose to construe

N.C.G.S. § 53-122 to include all assets, except real estate, held by a bank or a trust company in a fiduciary account, then it would appear that assessments were correctly computed. Therefore, you would not be required to refund assessments (as outlined by Commissioner Graham in his letters of January 10 and 18, 1995).

DISCUSSION OF THE LAW

We have not found any North Carolina decision specifically construing the term "trust assets" for the purposes of N.C.G.S. § 53-122. We are, therefore, guided in our discussion by the principles of statutory construction in general, and the law of trust and fiduciary relationships in particular.

A. Statutory Construction Generally.

N.C.G.S.

§ 53-101 provides that the Commissioner of Banks is empowered to employ clerical and secretarial help, and other necessary labor to conduct the affairs of his office. Additionally,

N.C.G.S.

§ 53-117(a) directs that the Commissioner of Banks, in order to carry out the provisions of Chapter 53 — the examination and supervision of banks and other entities under the Commissioner’s jurisdiction, is to appoint state bank examiners, assistant state bank examiners, clerks and stenographers as may be necessary to examine the affairs of every bank doing business under Chapter 53 at least once every year, unless that period is extended up to eighteen (18) months at the Commissioner’s discretion.

For the Commissioner to accomplish these statutory responsibilities, N.C.G.S. § 53-122, entitled "Fees for Examination and Other Services" provides, in relevant part, as follows:

For the purpose of paying the salaries and necessary travel expenses of the Commissioner of Banks, state bank examiners, assistant state bank examiners, clerks, stenographers, and other employees of the Commissioner of Banks, the following fee shall be paid into the Office of the Commissioner of Banks:

(1) Each bank and each branch and each limited service facility of any bank which under the laws of the State of North Carolina is subject to supervision and examination by the Commissioner of Banks and is authorized to do business or is in the process of voluntary liquidation, shall, within 10 days after the assessment has been made, pay into the Office of the Commissioner of Banks according to its total resources as shown by its Report of Condition made to the Commissioner of Banks at the close of business December 31, 1978, and on the 31st-day of December, or the date most nearly approximating same of each year thereafter on which a Report of Condition is made to the Commissioner of Banks not in excess of the following fees for its annual examination . . three dollars and fifty cents ($3.50) for each one hundred thousand dollars ($100,000) or a fraction thereof of trust assets, which said trust assets shall not include real estate carried as such. . . . (emphasis added)

In ascertaining the intent of the preceeding, or any statute, courts consider the language of the statute itself, the spirit of the Act, and what is sought to be accomplished. See, 27 NC Index 4th, Statutes (1994). In Northcutt v. Clayton, 269 N.C. 428, 152 S.E.2d 471 (1967), the North Carolina Supreme Court construed the general purpose of N.C.G.S. § 53-122 in determining the character of fees paid by a consumer finance company pursuant to that section of law. The Court determined that fees assessed pursuant to N.C.G.S. § 53-122 ". . . are intended to pay the necessary expenses of licensing, regulating, and supervising the business." It is, therefore, our view that the clearly delineated purpose of N.C.G.S. § 53-122, and its subsequent subsections, is to provide the Commissioner’s office with authority to assess banks, and certain other industries, for the cost of supervision and examination. In that you are required to examine all of the fiduciary activities of a trust department, or trust company, and not just the affairs of an express trust, it is our opinion that the phrase "trust assets," within the provision for assessments, may reasonably be construed to cover all of those assets, except real estate, held by the trust department in a fiduciary relationship.

Our conclusion on this issue is further supported by numerous other references in Chapter 53 to banks engaging in "trust and fiduciary" relationships. For instance, N.C.G.S. § 53-2 authorizes the incorporators of banks to engage in a ". . .trust and fiduciary business." N.C.G.S. § 53-17 provides that upon the merger or consolidation of a bank or trust company organized under North Carolina law, ". . .all the then existing fiduciary rights, powers, duties and liabilities (of the merging or transferring bank) including the rights, powers and duties and liabilities as executor, administrator, guardian, trustee and/or any other fiduciary capacity…shall be performed by the transferee bank. . . ." Also, within the provisions for a bank to deposit trust department cash in the commercial banking department, the statutes speak to "uninvested fiduciary funds" and "fiduciary accounts," not just trust accounts. See, N.C.G.S. § 53-43(6).

Finally, Article 14 of Chapter 53, "Banks Acting in a Fiduciary Capacity" clearly recognizes that in addition to trusteeships, fiduciary accounts shall include guardian, assignee, receiver, executor or administrator, N.C.G.S. § 53-159, as well as custodian or agent, N.C.G.S. § 53-159.1.

Again, N.C.G.S. § 53-117 requires the Commissioner to examine the "affairs" of every bank or trust company doing business under Chapter 53. The scope of this examination is not limited to any one particular type of transaction or account relationship. We, therefore, believe that the banking laws require the Commissioner to examine all of the affairs of the trust department and that N.C.G.S. § 53-122 provides the Commissioner with the authority to assess the bank, including assets held in a fiduciary capacity, for the cost of the supervision and examination.

B. Trust and Fiduciary Relationships.

Professor Scott in his treatises on the Law of Trusts indicates that in a narrow sense, the term "trust" is applied to the particular kind of fiduciary relationship originating from the English Court’s separation of law and equity, i.e., principally a private express trust, whereby the grantor transfers property (the "trust assets") to a trustee for the benefit of a designated beneficiary. He also suggests, however, that "[t]he term trust is used by courts and lawyers in a variety of senses. It is sometimes used to include various fiduciary relationships; not only trust in the narrow sense, but also bailment, executorship, guardianship, and agency." Austin Wakeman Scott, The Law of Trusts, §2 (4th ed. William Franklin Fractcher, 1987).

Professor Scott goes on to define a fiduciary relationship as involving ". . . a duty on the part of the fiduciary to act for the benefit of the other party to the relation as to the matters within the scope of the relation." Id. at §2.5. As indicated above, the relationship includes not only trusts in the more narrow sense, but guardianships, agencies and bailments. In fact, North Carolina, in adopting the Uniform Fiduciaries Act, has embraced this definition at N.C.G.S. § 32-2(a) wherein it is provided that the term "fiduciary" includes ". . . a trustee of any trust, express, implied, resulting or constructive, executive, administrator, guardian, conservator, curator,

receiver…agent, or any other person acting in a fiduciary capacity for any person, trust or estate.”
See also, Chapter 36A, Trusts and Trustees, more specifically Article 1, Investment and Deposit
of Trust Funds, wherein N.C.G.S. § 36(a)(1) provides that "the word ‘fiduciary’ shall be
construed to include a guardian, personal representative, collector, trustee, or any other person
charged with the duty of acting for the benefit of another party as to matters coming within the
scope of the relationship between them.”

We find that in the context of banks engaged in the trust business, references to trust and
fiduciary relationships are intended to cover a wide variety of accounts. The American Bankers
Association Glossary of Fiduciary Terms at p.45, defines "trust accounts" as "[a] general term to
cover all types of accounts in a trust department, including estates, guardianships, and agencies
as well as trusts proper." Baron’s Dictionary of Banking Terms (2nd. ed., 1993) defines a "trust
account" as a ". . . shorthand name for all types of accounts handled by a bank’s trust department
or by a trust company." Additionally, we note that the Comptroller’s Handbook for Fiduciary
Activities (September, 1990 ed.) at p. 52, defines personal trust accounts to include estates,
guardianships, testamentary trusts, inter vivos trusts and agencies.

Finally, we find from the Federal Deposit Insurance Corporation Examination Manual (March,
1983 ed.) at § X, that some state statutes define "trust activity" as serving in the legally defined
capacity of trustee, executor or administrator of estates, guardian of the estate of a minor or
incompetent, or other well understood capacities; however, it is not as clear when a bank may be
performing an agency or other function requiring trust powers. Some banks handle managing
agency accounts wherein there is no trust relationship and yet the bank assumes full control of
the cash and assets including investments. Therefore, the responsibility exceeds that exercised in
the case of a passive, directed personal trust account, or court directed estate or guardianship,
wherein the bank could reasonably assert that it is not acting in a "trust" capacity for such
accounts. In other words, from a regulatory perspective, the lines between pure trusts and other
fiduciary functions are not always clear. This, we believe, lends further credence to the
conclusion that reference to "trust assets" can reasonably be interpreted to include any assets,
except real estate, held in a fiduciary relationship.

CONCLUSION

It is not our position here, nor do we conclude, that guardianships, managing agencies and
safekeeping are trusts; nor are the assets held in those relationships trust assets in the narrow
sense. They are, however, fiduciary relationships established with the banks which you must
examine and supervise. As we have said, the clearly expressed purpose of N.C.G.S. § 53-122 is
designed to allow the Commissioner to assess "trust assets" for the purpose of examining and
supervising the bank’s trust operations. Therefore, we conclude that you may reasonably construe
that section of the law to include in this assessment the assets held by a bank in a fiduciary
capacity.

We trust that this adequately addresses the issues raised in your request to us. If, however, we
may be of further assistance, please do not hesitate to let us know.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General

L. McNeil Chestnut

Assistant Attorney General