Table of Contents
KYC for trusts means identifying the people behind the arrangement, not only the trustee who signs. That covers the settlor, every trustee, any protector or enforcer, the beneficiaries or the class they belong to, and anyone with effective control. You verify the individuals, read the trust deed, and screen every name.
A trust is not a legal person in most common law systems. It is an arrangement, and that single fact causes most of the confusion. No company register, no share certificate, no incorporation number. Your evidence is a deed and the people named in it.
Below is the party list, the document pack, how to handle discretionary trusts, how to unwrap layered holdings and nominee arrangements, and when to decline.
Why trusts sit higher on the risk scale
Trusts separate legal ownership from benefit. The trustee holds the asset. Someone else enjoys it. That separation has legitimate uses, including succession planning, pensions, charity and holding property for minors. It also puts distance between a person and money.
FATF Recommendation 25 deals with the transparency of trusts and other legal arrangements, and requires countries to make beneficial ownership information available to authorities. That recommendation exists because opacity is the default here unless someone forces it open.
Three features raise risk. Discretion, where nobody has a fixed entitlement you can point at. Layering, where the trust holds companies that hold other companies. Distance, where the settlor, the trustee and the assets sit in three different countries.
Who you have to identify
Start with the roles, then attach names. A deed will not always use the words you expect, so read the document rather than the covering letter.
The settlor
The person who put the assets in. Identify and verify them, and establish where the money came from. A dead settlor is still identified, because the source of the trust property matters regardless. Watch for a second contributor who is not named as settlor. Anyone who added property is economically a settlor whatever the deed calls them.
The trustees
Identify and verify every trustee, individual or corporate. A corporate trustee needs its own ownership chain, its regulatory status and the individuals authorised to act. Where there are several trustees, take the signing rules from the deed. Joint signature, majority or one acting alone changes who can move money.
The protector or enforcer
A protector can usually veto trustee decisions, remove trustees or approve distributions. That is control, so verify them like any other controller. Purpose trusts have an enforcer instead, since there are no beneficiaries to hold the trustee to account. Treat the enforcer the same way.
Beneficiaries
Named beneficiaries with a vested interest are identified and verified. Where the deed describes a class instead, record the class description and verify individuals as they become determinable. More on that below.
Anyone with effective control
Letters of wishes, powers of appointment, powers to add or remove beneficiaries, and reserved powers held by the settlor can all put real control somewhere other than the trustee. Ask for the letter of wishes. It is not always disclosable, but a refusal is information in itself.
What to collect, by role
The table below is a baseline. Requirements vary by jurisdiction and sector, so treat it as a floor.
| Party | Identify | Verify to document standard | Screen | Typical evidence |
|---|---|---|---|---|
| Settlor | Always | Always | Always | Passport or national ID, proof of address, source of wealth narrative with supporting records |
| Individual trustee | Always | Always | Always | Passport or national ID, proof of address, trust deed appointment clause |
| Corporate trustee | Always | Always, plus its own UBOs | Entity and its UBOs | Certificate of incorporation, register of directors, ownership chart, licence or regulatory permission |
| Protector or enforcer | Always | Always | Always | Passport or national ID, deed clause setting out the powers held |
| Named beneficiary, vested interest | Always | Always | Always | Passport or national ID, proof of address |
| Class beneficiary, no distribution yet | Record class description | On distribution or when rights vest | On identification | Deed clause defining the class, trustee confirmation of members known to date |
| Underlying company held by the trust | Always | Always, through to individuals | Entity, directors and UBOs | Registry extract, share register, structure chart signed by the trustee |
| Nominee shareholder or director | Always, plus the principal behind them | Principal verified in full | Both | Declaration of trust or nominee agreement, principal identity documents |
Collect the trust deed and every supplemental deed, appointment, retirement and variation. A trust that has existed for twenty years is rarely governed by the original document alone.
Discretionary trusts and beneficiary classes
This is where most files go wrong. A discretionary trust lets the trustee decide who benefits and by how much, usually from a defined class. The class can be wide. The children and remoter issue of the settlor could include people not yet born.
You cannot verify a person who does not exist yet. The workable approach has three parts.
- Record the class as the deed defines it, word for word, in the customer file.
- Identify and verify any member of the class who has received a distribution, has a vested or ascertained interest, or is named in a letter of wishes as a likely recipient.
- Set a control so identification happens before any distribution leaves the account.
The third point fails most often. If the payment runs through operations without a KYC check on the recipient, the class approach becomes a gap. Tie it to the payment process with a hard stop.
Ask the trustee two questions. Has any distribution been made in the past twelve months, and to whom. Has the class been varied since inception. Record both answers, dated and signed off.
Layered structures, foundations and nominees
Trusts rarely sit alone. A common shape is a trust holding a holding company, which holds operating subsidiaries in several countries. Your job is to get from the customer in front of you to natural persons.
Unwrapping the chain
Ask for a structure chart, then test it against independent sources rather than accepting it. Work down layer by layer, recording the percentage held and by whom, and multiply through to get indirect ownership. A person holding sixty percent of a company that holds sixty percent of the customer holds thirty six percent indirectly, above the twenty five percent threshold used in many regimes.
Ownership percentages are half the test. Control can sit with someone holding nothing, through a golden share, a shareholders agreement or the right to appoint the board. Record control findings separately from ownership findings.
Sanctions add another layer. Under the widely applied fifty percent aggregation principle, an entity owned in aggregate by designated persons is treated as blocked even when it is not named on a list. Screen the chain at every level rather than the top alone. Our explainer on the 50 percent rule in sanctions screening sets out how aggregation works.
Foundations
A foundation is a legal person with no shareholders, common in several civil law jurisdictions. It behaves like a trust but is structured like a company. Map the roles across. The founder corresponds to the settlor, the council to the trustees, and a guardian or supervisory body to the protector. Beneficiaries usually sit in by-laws behind the public charter, so ask for the by-laws specifically.
Nominee arrangements
A nominee holds shares or a directorship for someone else. The arrangement is lawful in many places and often properly disclosed. The risk is the undisclosed version.
Signals worth checking include one individual appearing as director across dozens of unrelated companies, a registered address shared by hundreds of entities, and shareholders resident where the business has no link. Where a nominee is disclosed, ask for the declaration of trust and identify the principal. Where you suspect one but it is denied, that contradiction belongs in the file and in the risk rating.
Screening a trust structure properly
Screening a trust means screening a list of people and entities rather than one customer name. Build the list first, and keep it as a maintained record rather than a one off export.
Screen the settlor, every trustee, the protector, every identified beneficiary, every company in the chain and their directors. Include the trust’s own name, since some structures are listed directly. You can run a denied party screening check across consolidated government lists in one pass.
Name matching is harder here than for a corporate customer. Trust parties are often individuals with transliterated names, several spellings and no public footprint. Expect false positives and clear them with documented reasoning rather than a tick. Weak sanctions screening in customer onboarding is much harder to fix later.
Keep screening evidence in reproducible form: list versions, search terms, match scores and disposition notes. Guidance on record keeping for denied party screening covers the fields that hold up under examination, and trust party lists change over time.
Registers and independent sources
The EU’s Fifth Money Laundering Directive extended beneficial ownership registration to trusts with tax consequences in member states, and the UK runs a Trust Registration Service on similar lines. Treat registers as corroboration rather than verification.
Register data is usually self reported, so it repeats whatever the filer said. Access to trust register data is also narrower than for company registers in several jurisdictions, so you may not see it at all.
Where a register entry contradicts the deed or the structure chart, resolve and record the discrepancy. Several jurisdictions impose a discrepancy reporting duty. Do not quietly accept the version the customer prefers.
Red flags and the decision to decline
Some warning signs are specific to trusts.
- The settlor keeps extensive reserved powers, so the trust is functionally a nominee arrangement.
- The trustee cannot explain the commercial or family purpose of the structure.
- Trustees have been replaced repeatedly with no reason given.
- The deed is unsigned, undated, in draft, or a later deed is missing.
- The trust was created shortly before a large transaction, an investigation or an insolvency.
- Assets are held in a jurisdiction with no connection to the settlor or beneficiaries.
- The structure adds layers that create cost without any tax, succession or commercial benefit.
- The trustee resists naming beneficiaries while pressing for the account to be opened quickly.
Three of those together is usually a decline, though the decision belongs to your risk appetite rather than a checklist. The firmer rule is simpler. If you cannot identify the natural persons who control or benefit from the arrangement, due diligence is incomplete and the relationship should not proceed. The broader red flags of sanctions evasion apply to trust structures too.
Be careful what you say when declining. Most regimes prohibit tipping off, so you must not disclose that a suspicion report has been made or is contemplated. Decline on commercial grounds, record the real reason internally, and take advice before saying more.
Keeping the file current
Trust files decay faster than corporate files, because the changes that matter are private. A new trustee, a variation of the class, a distribution to an unknown beneficiary. None appear in a public filing.
Put an obligation on the trustee to notify you of changes in writing, and set your own trigger events alongside it. The practical list: a change of trustee, protector or signatory, a distribution to a new recipient, a variation of the class, a change in the underlying companies, a sanctions or PEP hit on any party, and adverse media naming anyone in the structure.
Rescreen the whole party list on a schedule too, since designations change without any change on the customer’s side. Keep records for at least five years after the relationship ends, the minimum FATF Recommendation 11 sets for transaction and CDD records.
Key takeaways
- A trust is an arrangement rather than a legal person in most common law systems, so the evidence base is the deed and the people named in it.
- Identify and verify the settlor, every trustee, any protector or enforcer, beneficiaries with vested interests, and anyone with effective control through reserved powers or powers of appointment.
- For a discretionary trust, record the beneficiary class exactly as the deed defines it and verify individual members before any distribution is paid.
- Multiply ownership percentages through each layer of a holding chain, and record control findings separately, because control can sit with someone who owns nothing.
- Under the fifty percent aggregation principle, an entity owned in aggregate by designated persons can be blocked without being listed itself, so screen the chain at every level.
- Trust registers are self reported and access is often restricted, so use them to corroborate rather than verify.
- If you cannot identify the natural persons who control or benefit from the structure, due diligence is incomplete and the relationship should not proceed.
Frequently asked questions
Who is the customer when a trust opens an account?
The trustee is normally the customer, acting in that capacity rather than personally. A trustee who is already your customer personally needs a separate file for the trust relationship, with its own risk rating and party list. Record the capacity in the account documentation so payments and instructions can be checked against it.
Do you have to identify every beneficiary of a discretionary trust?
No, and with an open class it would be impossible. Record the class as the deed defines it, then identify and verify individuals once they become determinable. That means anyone who receives a distribution, holds a vested interest, or is named in a letter of wishes. Build a control that requires identification before a distribution is released.
What documents should you ask for on a trust?
The trust deed and all supplemental deeds, including appointments, retirements and variations. Identity and address evidence for the settlor, trustees, protector and identified beneficiaries. A signed structure chart if companies are held. Source of wealth for the settlor. For a corporate trustee, its incorporation documents, ownership chain and regulatory permission.
How do you handle a trust with a corporate trustee in another country?
Treat the corporate trustee as an entity customer in its own right. Verify its incorporation, its ownership chain through to individuals, its licence status, and the individuals authorised to give instructions. Check whether it is supervised for anti money laundering purposes, since a regulated professional trustee and an unregulated private company carry different risk.
Is a foundation treated the same as a trust?
The legal form differs, since a foundation is a legal person with no shareholders, but the due diligence approach maps across. The founder takes the settlor role, the council takes the trustee role, and a guardian or supervisory body takes the protector role. Beneficiaries are usually described in by-laws rather than the public charter, so request the by-laws directly.
When should you refuse a trust relationship?
When you cannot identify the natural persons behind it. Also when the stated purpose does not explain the structure, when documents are incomplete or contradictory and stay that way, or when a party is subject to sanctions and no licence applies. Decline on commercial grounds, record the real reason internally, and take advice before saying more, because tipping off rules apply.
Checking the names in a structure
Once you have the party list, screening it is the fastest way to find real problems. Globalior’s free screening tool covers consolidated government lists, and you can use the free denied party screening tool on every name in the chain rather than the trustee alone.
For help with a structure you cannot unwrap, contact the Globalior team.