Uniform Fiduciaries Act

Imagine that a trust is established with insurance proceeds for the benefit of a minor child Billy after his parents are killed in an accident, with Uncle Theodore as Trustee.  Theodore cannot use the insurance proceeds to buy a new boat or to pay of Theodore’s student loan debt.  If Theodore violates that rule, what then?  Assuming Theodore no longer has the trust assets to return to Billy, how is Billy to be made whole again?  Might those people who helped Theodore take the trust assets also be held liable?  Does the bank where the trust assets were deposited have any protection against a suit if the bank acted in good faith?

The Uniform Fiduciaries Act (“UFA”) reduces a bank’s transaction costs associated with dealing with a fiduciary by eliminating a duty on the part of banks to inquire as to whether the fiduciary was acting properly. Assuming that Theodore was upholding his fiduciary duty to Billy in spending the trust assets, it would be frustrating and costly to require the bank to question Theodore’s every transaction.  The UFA attempts to reduce those costs.


Section 7 of the UFA controls deposits in the name of fiduciary as such (“To:  Theodore as Trustee”).  Section 8 controls deposits in the name of the principle (“To:  Billy”).  Section 9 controls deposits in the fiduciary’s personal account (“To:  Theodore”), including transfers from the trust account to the trustee personally, authorized by the trustee in his capacity as trustee.  Several sections of the UFA were supplanted by the Uniform Commercial Code, and parties may battle over which law applies to the transfers.  The applicability of the specific provisions the UFA versus the more general provisions of the UCC, was the subject of Bradley v. First National Bank of Walker.

The UFA has been adopted in only 26 states, including Minnesota, Wisconsin, Illinois, South Dakota, and New York.  If dealing with an issue of questionable transfer to or by a fiduciary where the UFA has not been adopted, a claim would likely rest in the common law.


In the first Minnesota case following passage of the UFA, the bank was not liable for the actions of a school treasurer who stole funds entrusted to him by the school.  The treasurer, who was authorized to write checks on the trust account, instructed the bank to deposit only part of the school’s funds into the school’s account.  The remainder was deposited in his personal business account.  Finding Section 9 of the UFA to apply, the Court found no bad faith on the part of the bank because the treasurer “was authorized to handle the school district funds in his own way.”  The Court found that the bank had no knowledge that the treasurer was committing a breach of his obligation, nor any facts sufficient to establish that the bank “must have acted in bad faith in carrying out his instructions.”

The bank was likewise held without liability for the breach of duty by a son who was disinherited by his mother before her death.  “. . . [T]he bank is not liable for making the transfer of funds from one account to the other unless the transfer was made with knowledge that [the son] was thereby committing a breach of his fiduciary obligations or with knowledge of facts which indicate the bank was acting in bad faith in making the transfer.  ‘Bad faith’ does not exist if the bank was acting honestly,

Conversely, the bank was held liable under the UFA in Minnesota Valley Country Club, Inc. v. Gill. Here, the bank knew that the fiduciary was breaching his duty, and it took steps to facilitate the transactions anyway.  “The actual format of the transactions which occurred in Murphy’s office is not as important as their substance, which was conduct that the provisions in sections 520.08 and 520.09 were intended to prevent.” Punitive damages applied.


A claim under the UFA will be under one of three sections.  A plaintiff must:

  1. Show that a deposit was made:
    • In the name of a fiduciary and designated as such;
    • In the name of a principal; or
    • Into a fiduciary’s personal account; and
  2. Show the bank had either:
    • Actual knowledge that the fiduciary is committing a breach of an obligation as fiduciary in drawing such check, or
    • Knowledge of such facts that the bank’s action in paying the check amounts to bad faith, OR
  3. The bank either
    • Receives the deposit or pays the check with actual knowledge that the fiduciary is committing a breach of an obligation as fiduciary in making such deposit or in drawing such check, or
    • With knowledge of such facts that its action in receiving the deposit or paying the check amounts to bad faith.

Defenses to a claim under the UFA rest primarily in putting the plaintiff its burden of proof. The UFA primarily provides safe harbor acts for banks, and a plaintiff faces the challenge of proving “knowledge” or dishonest acts (bad faith).  Practitioners must determine whether the acts alleged to be in breach were within the scope of the fiduciary’s duties as fiduciary.  Simply negligent acts are not within the scope of the statute.

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