Can a Maryland trust company combine pension money it manages as trustee with money it only holds as an agent or custodian into one common investment fund?

Plain-English summary

The Bank Commissioner asked the Attorney General to reconsider a 1965 opinion holding that a trust company could not combine, in a single common trust fund, money it held as trustee (or co-trustee) of employee benefit plans with money it held only as a managing agent or custodian for other plan trustees. The question arose because a Baltimore City pension plan wanted its custodian bank to place short-term pension funds into an existing common trust fund the bank maintained for other trustee relationships, but the bank declined the request based on the 1965 opinion, which had concluded that a managing agent, unlike a trustee, is not acting as a "fiduciary" under Maryland's Common Trust Fund Act. The 1983 opinion concluded the 1965 opinion was wrong: reviewing the same statute, now recodified in the Financial Institutions Article, the Attorney General found that a trust company's fiduciary capacities include every capacity in which it is authorized to act under the Financial Institutions Article as a whole, including the statutory power to act as an agent or custodian, not just the narrow list of court-appointed roles the 1965 opinion had mistakenly treated as exhaustive. The opinion therefore concluded that a trust company acting as agent or custodian for pension trustees is a "fiduciary" for common trust fund purposes and can lawfully commingle those funds with funds it holds as trustee.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Maryland trust company combine pension money it manages as trustee with money it only holds as custodian, in a single common trust fund, under this opinion?
Yes. The opinion overruled a 1965 Attorney General opinion and concluded that a trust company acting as an agent or custodian is acting in a "fiduciary" capacity, so both kinds of holdings could be commingled in a common trust fund consistent with the Common Trust Fund Act, subject to any restrictions in the underlying trust instruments or applicable federal law.

Why had the earlier 1965 opinion reached the opposite conclusion?
The 1965 opinion read a single, narrow statutory provision (former Article 11, §58, dealing mainly with court-appointed roles like executor or guardian) as the exclusive source of a trust company's fiduciary powers, and since that provision did not expressly mention acting as an "agent," it concluded an agent was not a fiduciary for common trust fund purposes.

What changed the Attorney General's mind in 1983?
The 1983 opinion found that the controlling statutory language was broader: it defined a trust company's relevant "fiduciary capacities" as everything the company is authorized to do under the entire Financial Institutions Article, which elsewhere expressly authorizes trust companies to act as agents and custodians. The 1983 opinion also traced how the 1965 opinion's key provision had since been recodified in a way confirming it was never meant to be the sole source of fiduciary authority.

Does this opinion still control how Maryland trust companies handle pension funds today?
This page reflects the law as the Attorney General understood it in 1983. The underlying statutes have since been recodified further, so anyone relying on this analysis for a current transaction should verify the current text of the Financial Institutions Article and Estates and Trusts Article rather than relying on this historical opinion alone.

Background and statutory framework

A trust company served as one of the investment managers and as custodian for a Baltimore City pension plan. To obtain more effective short-term investment for pension funds, the City asked the trust company to place those funds in an existing common trust fund the company maintained for other, tax-qualified employee benefit plans, offering the flexibility of daily entry and withdrawal. The trust company declined, citing 50 Opinions of the Attorney General 10 (1965), which had concluded Maryland law did not authorize a trust company to commingle funds held as managing agent or custodian with funds held as trustee, because the 1965 opinion read the fiduciary-capacity requirement of the Common Trust Fund Act narrowly, tying it to a single provision (then Article 11, §58) covering mainly court-appointed roles like executor, administrator, or guardian.

The 1983 opinion reexamined the statute, by then recodified in Title 3, Subtitles 2 and 5 of the Financial Institutions Article. It found that the operative definition, FI §3-503, defines a trust company's relevant "fiduciary capacities" as "all of those capacities in which a trust company may act under this article," not merely the capacities listed in the provision the 1965 opinion had relied on. Tracing that provision's own recodification history (into §13-206 of the Estates and Trusts Article, now limited to court-appointed guardianships) and the general grant of trust-company powers in FI §§3-206 and 3-207, including express authority to "[a]ct as the agent of any foreign or Maryland corporation for any lawful purpose" and to "[a]ccept and hold trust property," the opinion concluded that acting as an agent or custodian is one of the broader statutory "fiduciary capacities" that trigger common trust fund eligibility. It supported this reading with the Court of Appeals' decision in Ghingher v. O'Connell, which had already described the predecessor powers-granting provision as conferring "the power to act as a fiduciary," and with general agency law recognizing that an agency relationship itself creates fiduciary duties, as the Court had held in Nagel v. Todd.

Citations

Statutes:

• Title 3, Subtitle 5 of the Financial Institutions Article (Common Trust Fund Act), including FI §3-501(b) (definition of "common trust fund"), §3-501(d) (definition of "trust company"), §3-502 (authority to establish common trust funds), §3-503 (definition of "fiduciary capacities"), and §3-510 (conditions for investing fiduciary funds in a common trust fund)
• FI §3-206 (general powers of commercial banks) and §3-207, including §3-207(8) (additional powers of trust companies, including acting as agent, custodian, or court-appointed guardian/trustee/receiver)
• FI §1-101(f) and §1-101(m) (definitions of "commercial bank" and "national banking association"); FI §3-101(f) (definition of "trust company")
• former Article 11, §62 (predecessor Common Trust Fund Act provisions) and former Article 11, §58 (predecessor fiduciary-capacities provision, since recodified)
• §13-206 of the Estates and Trusts Article (recodification of former §58, limited to court-appointed guardianships), enacted by Chapter 33, Laws of Maryland 1980
• Article 1, §18 of the Code (statutory captions not part of the law)
• Article 37A of the Code (Maryland Uniform Fiduciaries Act, since recodified as Title 15, Subtitle 2 of the Estates and Trusts Article)

Cases:

• Ghingher v. O'Connell, 165 Md. 267 (1933)
• Nagel v. Todd, 185 Md. 512 (1945)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1983/Volume68_1983.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

BANKING INSTITUTIONS

Trust Companies, Common Trust Fund Act, Fiduciaries, Agent or Custodian of Trust Funds is a "Fiduciary" Under Common Trust Fund Act.

January 19, 1983

The Honorable Joseph R. Crouse
Bank Commissioner

You have asked us to reconsider a prior Opinion of the Attorney General, 50 Opinions of the Attorney General 10 (1965), which concluded that, under the applicable statutory and common law of Maryland, a national banking institution cannot collectively invest in one common trust fund both: (i) funds held by it in its capacity as a trustee (or cotrustee) of one or more employee benefit plans; and (ii) funds held by it in its capacity as a managing agent for the trustees of one or more other employee benefit plans. Although State law permits a trust company (including a national banking association with powers similar to those given a State trust company) to commingle and collectively invest funds held by it as a "fiduciary", the Opinion concluded that a managing agent or custodian of a trust fund, unlike the trustee of that fund, is not acting as a "fiduciary" within the meaning of that law.

For the reasons given below, it is our opinion that the 1965 Opinion was wrong in so concluding. As we construe the relevant statutory provisions, now codified in Title 3, Subtitles 2 and 5 of the Financial Institutions Article, a trust company that acts as a managing agent or custodian for other trustees is acting in a fiduciary capacity. Consequently, a trust company is permitted by State law to establish a group or "common trust fund" for purposes of commingling and investing funds held by it, whether as a trustee or as a managing agent. For purposes of this Opinion, we assume that neither the underlying trust instruments nor any applicable federal law governing these trusts would preclude such commingling and collective investment. See, e.g., FI §3-510(2).

I
Background

You have advised us of a proposal by a trust company for the investment of certain funds in a common trust fund. The trust company serves as one of the investment managers for the City's pension plan and as custodian for all of the pension plan funds. In order to obtain the most effective temporary investment for these pension plan funds, the City requested the trust company to place them in an existing common trust fund maintained by the trust company, but limited to certain employee benefit plans that are qualified under §401 of the Internal Revenue Code and exempted from taxation by §501 of that Code. This common trust fund is devoted to short-term or money market investments and permits the flexibility of daily entry and withdrawal. (Baltimore City Ordinance No. 238, passed on February 7, 1981, specifically authorized the custodian of the pension plan funds to invest those funds in short-term investment funds of which that custodian is also the manager or trustee.)

The trust company declined the City's request in light of a 1965 Opinion of the Attorney General, which concluded that Maryland statutory law did not authorize the commingling of funds held by a trust company in its capacity as managing agent or custodian with funds held by it as a trustee. 50 Opinions of the Attorney General 10 (1965).

II
The 1965 Opinion

The 1965 Opinion addressed the following inquiry: "You have asked whether, in our opinion, the establishment of a group trust for employee benefit plans for the collective investment of funds held by a national bank in its capacity as trustee and co-trustee, as well as in its capacity as agent for investment purposes of various trustees, for pension, profit sharing, and employee benefit trusts, constitutes a common trust fund (1) specifically within the meaning of Section 62(2) of Article 11 of the Maryland Code and more generally (2) whether the establishment of such a group trust contravenes the law of Maryland." 50 Opinions of the Attorney General 10, 10 (1965).

The Opinion explained that, at common law, the ability of a trustee to commingle funds from separate trusts, even if derived from a common grantor and held for a common beneficiary, was severely limited. 50 Opinions of the Attorney General at 11. Because "[a]dherence to these principles proved inefficient under modern conditions", a number of states adopted "the Uniform Common Trust Fund Act to permit, under certain conditions, the establishment of common trust funds for the purpose of collectively investing money held by a bank or trust company in its capacity as fiduciary or co-fiduciary". 50 Opinions of the Attorney General at 11-12.

The Opinion then examined Maryland's version of that Act, then codified at Article 11, §62 of the Maryland Code and now found in Title 3, Subtitle 5 of the Financial Institutions Article ("FI" Article). FI §3-502 provides that: "A trust company may establish and administer one or more common trust funds in accordance with the requirements of this subtitle." This provision is derived without substantive change from the first sentence of former Article 11, §62(1). At the time of the 1965 Opinion, that sentence provided: "Any trust company may establish, maintain and administer one or more common trust funds as hereinafter defined."

FI §3-501(d), in turn, defines "trust company" to include "a national banking association that has powers similar to those given to a trust company under the laws of this State". This definition is derived without substantive change from the second sentence of former Article 11, §62(1). At the time of the 1965 Opinion, that sentence provided: "The term 'trust company' as used in this section shall also refer to and include any national bank or trust company authorized to exercise fiduciary powers similar to those conferred upon trust companies by this article." See also FI §1-101(m) ("national banking association") and FI §3-101(f) ("trust company").

The term "common trust fund" is defined in FI §3-501(b) as follows: "'Common trust fund' means a fund that a trust company maintains under this subtitle solely for the collective investment of money held by the trust company as fiduciary." This definition is derived without substantive change from former Article 11, §62(2). At the time of the 1965 Opinion, §62(2) provided: "The term 'common trust fund' means a fund maintained by a trust company, exclusively for the collective investment and reinvestment of moneys contributed thereto by such trust company in its capacity as a fiduciary or cofiduciary, and operated and administered pursuant to the requirements of this section."

And, for purposes of clarifying this reference to a trust company's activities as a "fiduciary", FI §3-503 provides as follows: "The fiduciary capacities of a trust company referred to in this subtitle include all of those capacities in which a trust company may act under this article." This provision is derived without substantive change from former Article 11, §62(3). At the time of the 1965 Opinion, §62(3) provided: "The fiduciary capacities referred to in this section shall include all of those in which a trust company is permitted to act under the provisions of this article." The term "fiduciary" also is used, for example, in FI §3-510, which states: "A trust company, acting in a fiduciary capacity, may invest money in one or more common trust funds if: (1) The trust company holds the money for investment; and (2) The instrument or authorization that created the fiduciary relationship does not contain any terms inconsistent with this type of investment." This provision is derived from former Article 11, §62(4).

The Opinion's inquiry focused upon the statutory prerequisite that money to be commingled by a trust company must be held by the trust company "as fiduciary", or, as the statute was then worded, "in [the trust company's] capacity as a fiduciary or cofiduciary". More specifically: "The crux of this inquiry is determining whether the fiduciary capacities under which the bank may act under Article 11, include that of managing agent." 50 Opinions of the Attorney General at 12.

In large part, the Opinion's resolution of the issue was based upon its view that another provision of the same article, then §58 of Article 11, was the sole operative statutory source of a trust company's fiduciary powers: "Section 58 of Article 11, itself a departure from the common law, authorizes trust companies to act as executors or administrators of estates, guardians, trustees, receivers, or committees, or 'in any other fiduciary capacity'." 50 Opinions of the Attorney General at 12-13. (Article 11, §58 has since been incorporated into §13-206 of the Estates and Trusts Article.)

After referring to several statutory definitions of "fiduciary", the Opinion found it significant that only the Maryland Uniform Fiduciaries Act expressly included the term "agent" within the definition of "fiduciary". (The Maryland Uniform Fiduciary Act was then codified in Article 37A of the Code. It has since been recodified as Title 15, Subtitle 2 of the Estates and Trusts Article.) Given the absence of a similar express reference to "agent" in either the common trust fund statute or §58, coupled with the common law warning against the unauthorized commingling of separate trust funds by a trustee, the Opinion suggested that to add funds held by an agent to common trust property would be "to add an additional party to the customary settlor-trustee-beneficiary relationship, wi[th] all of the attendant legal problems occasioned by varying the relationship, however slightly." 50 Opinions of the Attorney General at 13. (The "attendant legal problems" referred to here were not specifically identified in the Opinion.) The Opinion concluded that, therefore, the proposed collective investment did not constitute a common trust fund within the meaning of the common trust fund statute.

We believe, however, that this conclusion was based on an incomplete statutory analysis.

III
Statutory Analysis

We agree with the 1965 Opinion in its recognition that "[t]he crux of this inquiry" is determining whether the "fiduciary" capacities under which a trust company may act include that of a managing agent or custodian. As noted above, however, FI §3-503 provides that the necessary "fiduciary capacities" include "all of those capacities in which a trust company may act under this article". (Former Article 11, §62(3) similarly referred to "all of those [capacities] in which a trust company is permitted to act under the provisions of this article".) In this regard, the Opinion's reliance on but one provision of "this article", former §58 of Article 11, was misplaced.

Former Article 11, §58, rather than setting forth all of a trust company's fiduciary capacities, an impression perhaps engendered by the section's caption, was actually quite limited in scope. (The caption to §58 read as follows: "Fiduciary capacities in which trust companies may act; deposit of money with". But see Article 1, §18 of the Code, which provides that statutory captions are not to be considered as "any part" of the law itself.) By its terms, §58 only applied to a trust company when acting in certain specific, narrowly-defined circumstances: (1) as personal representative of a decedent's estate; (2) as the court-appointed guardian of the estate of an infant; (3) as the court-appointed trustee or guardian of the estate of a "lunatic, idiot or habitual drunkard"; or (4) in any similar, court-appointed "fiduciary capacity".

We believe that the 1965 Opinion thus overemphasized and misconstrued the phrase "in any other fiduciary capacity". It was not, as the Opinion suggested, intended as the basic grant of authority for trust companies to act as fiduciaries. Rather, as seen from its context, it was merely intended as a broad "catchall" reference, to supplement the more specific references to a court appointing a trust company as a "guardian, trustee, receiver or committee". Certainly, a trust company's general ability to act as a fiduciary does not, as the Opinion's reading of §58 would suggest, necessarily first require a court appointment.

That this is so, that a trust company's fiduciary powers did not derive from former §58, is evident from the subsequent recodification of that section as part of §13-206 of the Estates and Trusts Articles ("ET" Article). As indicated in the Supplemental Revisor's Note to ET §13-206, Chapter 33, Laws of Maryland 1980, which enacted the Financial Institutions Article, also amended ET §13-206 to "incorporate in it the substance of the last three sentences of former Article 11, §58". Those sentences included the reference to a trust company acting "in any other fiduciary capacity". Yet, as amended, ET §13-206 no longer contains such a broad reference to a "fiduciary capacity"; rather, it simply refers to a court's appointment of a trust company to serve as "guardian of the estate of a minor or disabled person". This supports our view that the original reference in §58 to a "fiduciary capacity" was simply intended, and, on revision, no longer needed, to serve as but a broad synonym for "guardian".

More significantly, however, we also find that, even in this limited guardianship context, ET §13-206 is not understood to be the source of a trust company's basic power to serve as a guardian. Rather, as the Supplemental Revisor's Note states: "[T]he general power of a trust company to serve as a guardian" is found elsewhere, in FI §3-207. (See FI §3-207(8), which authorizes a trust company to "[a]ct as guardian, receiver, or trustee of the estate of any person under order or appointment of a court and as a depository of money paid to the court for the benefit of the person".) Similarly, the Supplemental Revisor's Note indicates that the balance of former §58, relating to the granting of letters testamentary or letters of administration to a trust company, was deleted as "unnecessary" in light of other statutory provisions, such as FI §3-207.

Evidently, then, it is to such other statutory provisions, not §58, that one must look to find the basic authorization of a trust company to act as a "fiduciary". These provisions, of course, include the very sections in which a trust company's powers are delineated: FI §§3-206 and 3-207.

FI §3-206 ("General powers of commercial bank") sets forth the basic powers of all "commercial banks", including trust companies. See FI §1-101(f) ("commercial bank"). FI §3-207 ("Additional powers of trust company"), in turn, sets forth those powers that are uniquely granted to a trust company. Among the latter, we find various references to the power of a trust company to act as an agent or custodian: "In addition to the powers set forth elsewhere in this article, a trust company may: (1) Receive deposits of money, securities, and other personal property from any person; (2) Act as the agent of any foreign or Maryland corporation for any lawful purpose; ... (4) Accept and execute any trust and any powers that are conferred on or entrusted to it in any manner, including any grant, assignment, transfer, devise, or bequest by any person or by order of a court; [and] (5) Accept and hold trust property[.]" (At the time of the 1965 Opinion, these powers were enumerated in then Article 11, §57.)

That FI §3-207 enumerates "fiduciary capacities" that a trust company may assume is supported by the Court's ruling in Ghingher v. O'Connell, 165 Md. 267 (1933). In Ghingher, the Court reviewed this section, then codified as Article 11, §46, and rather succinctly noted: "So it appears that [this section] confers upon a trust company the power to act as a fiduciary". 165 Md. at 271.

Applying this construction to the inquiry addressed in the 1965 Opinion, it appears that the collective fund there described would come within the definition of a common trust fund, even though composed in whole or in part of funds held by a trust company (or national banking association) in its capacity as an agent or custodian, because such funds are held by the trust company "in its capacity as a fiduciary or cofiduciary".

This statutory construction is consistent with the common law on agency. For example, in Nagel v. Todd, 185 Md. 512 (1945), the Court quoted with approval from Restatement of Agency §13, Comment (a) (1933): "The agreement to act on behalf of the principal causes the agent to be a fiduciary, that is, a person having a duty, created by the undertaking, to act primarily for the benefit of another, in matters connected with his undertaking." 185 Md. at 516. (See also Restatement (Second) of Agency §13, Comment (a) (1958). Although Nagel v. Todd was cited in the 1965 Opinion, it was not there considered to be sufficiently pertinent in resolving the issue posed by the inquiry; again, we disagree.)

IV
Conclusion

In summary, it is our opinion that 50 Opinions of the Attorney General 10 (1965) was wrong in its conclusion that Maryland law did not authorize, under any circumstances, a trust company to commingle and collectively invest funds held by it as a trustee with funds held by it as managing agent for other trustees. Consequently, the trust company in question would be authorized to make its short-term investment fund available to the City pension plan funds for which the trust company serves as agent or custodian, subject, of course, to the various requirements of Title 3, Subtitle 5 ("Common Trust Funds") of the Financial Institutions Article and the limitations, if any, contained in the underlying trust instruments or in any applicable federal law.

Stephen H. Sachs, Attorney General
Avery Aisenstark, Chief Counsel, Opinions and Advice
Robert deV. Frierson, Assistant Attorney General