Can a bank that has no offices in North Carolina serve as the trustee for bonds issued by the North Carolina Medical Care Commission, or is in-state presence required?
Plain-English summary
The North Carolina Medical Care Commission issues bonds and notes under N.C.G.S. § 131A-11 to finance hospital and medical-facility projects. Like most bond issuers, the Commission can designate a trustee bank or trust company to hold and administer security for the bondholders.
The general rule in North Carolina banking law is that a bank or trust company without an office in the state cannot exercise fiduciary powers here. That rule exists to keep state-chartered fiduciaries answerable to state regulators and to make sure beneficiaries have local recourse if a fiduciary breaches its duty.
But the legislature can carve out exceptions, and for the Medical Care Commission it did. Section 131A-12 says that any bond or note issued by the Commission "may be secured by a trust agreement by and between the Commission and a corporate trustee, which may be any trust company or bank having the powers of a trust company within or without the state." The phrase "within or without the state" is the key text. It tells the Commission directly that out-of-state institutions are permitted as trustees, overriding the general fiduciary-residency rule for this specific bond-trustee role.
The AG's answer was therefore straightforward. The Commission has discretion to designate a nonresident corporate trustee for its bonds.
Currency note
This opinion was issued in 1996. 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. North Carolina banking law has changed substantially since 1996, especially around interstate banking after Riegle-Neal. The current trust-services landscape includes nationally chartered trust companies, multi-state bank trust departments, and consolidated trustee operations that may not have existed in their current form in 1996.
Background and statutory framework
The Medical Care Commission was created to expand financing options for nonprofit hospitals and medical facilities in North Carolina. The Commission issues conduit bonds: the Commission is the formal issuer, but the underlying credit is the hospital or other facility for which the bonds finance construction or renovation. Conduit-issuer programs commonly use sophisticated trust structures with experienced trustees, and the pool of qualified trust departments is national, not just in-state.
The general nonresident-fiduciary rule the AG referenced is a longstanding feature of state banking law. North Carolina, like most states, historically restricted who could hold fiduciary appointments (executor, administrator, trustee, guardian) to entities subject to state regulation. The rule protects beneficiaries and creditors by ensuring local accountability. It also protects in-state institutions from out-of-state competition, but that protectionist dimension has faded over time as interstate banking has expanded.
The legislature's exception in § 131A-12 was deliberate. Bond trustees are sophisticated commercial actors transacting at arm's length with the issuer and the bondholders; they are not the kind of fiduciary the general rule was designed to police. Restricting Medical Care Commission bond trustees to in-state institutions would have raised costs (limited competition) and limited the Commission's ability to use experienced national trust departments. The "within or without the state" language was the cleanest way to remove the restriction for this specific bond-trustee role without touching the general rule.
The AG's analysis treated the question as a routine statutory-construction matter. The general rule is a default; an express statutory exception controls. The Commission was simply asking the AG to confirm that the express exception did what its plain language said, and the AG confirmed it.
Common questions
Does this opinion apply to other state-agency bond issuers?
Only the Medical Care Commission. Other state bond-issuing authorities have their own enabling statutes. Some have similar "within or without the state" language; others do not. Anyone working on a different state issuer's bonds should check that issuer's own enabling statute for the trustee-residency rule.
What about hospital revenue bonds issued directly by a nonprofit hospital, not the Commission?
Direct hospital issuance is a different framework. The Medical Care Commission's conduit issuance is governed by Chapter 131A. A direct issue would be subject to whatever statutory framework authorized it, and the trustee residency question would turn on that framework's language, not § 131A-12.
Does the trustee bank have to register in North Carolina to act under a § 131A-12 trust agreement?
The opinion does not address that. The express exception lets the Commission contract with an out-of-state institution; whether the out-of-state institution must take any registration or notification step under other North Carolina banking-law provisions is a separate question. Modern interstate banking statutes generally let out-of-state institutions perform isolated trustee services without further in-state registration, but the analysis depends on the specific transaction structure.
Source
Citations
- N.C. Gen. Stat. § 131A-11
- N.C. Gen. Stat. § 131A-12
Original opinion text
February 19, 1996
The Honorable Lucy Hancock Bode
Chairman, North Carolina Medical Care Commission
Department of Human Resources
P.O. Box 29530
Raleigh, North Carolina 27626-0530
Re: Advisory Opinion; Authority of Nonresident Corporate Trustee; N.C.G.S. § 131A-12
Dear Ms. Bode:
This will respond to your request of our office for an opinion on the issue of whether banks that do not have offices located within the State of North Carolina may legally serve as, and carry out the responsibilities of, the trustee for bonds issued by the North Carolina Medical Care Commission.
As a general rule of law, a nonresident bank or trust company does not have the statutory authority to exercise fiduciary powers in this state. The General Assembly, however, has in certain instances provided an express statutory exception to the general rule. In the case of the North Carolina Medical Care Commission, N.C.G.S. § 131A-12 provides in relevant part that [i]n the discretion of the Commission any bonds or notes issued under the provisions of this Chapter may be secured by a trust agreement by and between the Commission and a corporate trustee, which may be any trust company or bank having the powers of a trust company within or without the state.
It thus clearly appears that the Commission may designate a nonresident corporate trustee to administer the bonds and notes which the Commission is authorized to issue pursuant to N.C.G.S. § 131A-11.
We trust that this provides you with the information you seek. If we may be of further assistance, please let us know.
Ann Reed
Senior Deputy Attorney General
L. McNeil Chestnut
Assistant Attorney General