What must a bank establish clearly to engage in transactions as a trustee?

To effectively engage in transactions as a trustee, a bank must establish a formal contract with the trustor that clearly defines the roles and responsibilities of both parties involved. This contract is crucial because it outlines the expectations, obligations, and rights associated with the trust arrangement. It specifies the duties of the trustee, which may include managing trust assets, making distributions to beneficiaries, and adhering to specific guidelines set forth by the trustor. A well-defined agreement ensures that both the trustor and the trustee have a mutual understanding of their respective roles, which is essential for the proper administration of the trust and can help mitigate disputes in the future.

The other options may be relevant to trust management but do not fulfill the fundamental requirement of establishing the legal relationship necessary for the trustee to act. For instance, while policies for asset management and reporting systems are important for the operational aspects of managing a trust, they do not replace the need for a formalized agreement that recognizes the fiduciary relationship. Additionally, guaranteeing profit for beneficiaries is generally unrealistic and could lead to ethical and legal concerns, as it does not accurately reflect the fiduciary responsibilities of acting in the best interest of beneficiaries while managing risk.