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What Are Trust Accounts?

Trust accounts are financial accounts that are managed by someone on behalf of someone else.
Parents may set trust funds for their children which may pay out money at set intervals or for specific expenses, with the bulk of the money remaining in the fund until the children reach a certain age.
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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 22 September 2014
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Trust accounts are financial accounts which are managed by someone on behalf of someone else. The person who manages the trust is known as the trustee, and in some cases, the trustee may also be the grantor, the person who set up the trust in the first place. There are a number of ways in which trust accounts can be used, and people who are interested in setting one up should consult a lawyer and a financial adviser to get more information for the specifics of their situation.

Broadly, trust accounts fall into two categories: revokable trusts and irrevocable trusts. A revokable trust is a trust over which the grantor retains control. The grantor can decide to change the terms of the trust or to dissolve it altogether. On the other hand, with an irrevocable trust, the grantor surrenders the right to control the trust.

One reason to set up a trust is to protect funds, if a grantor feels that the beneficiary of the trust cannot handle funds independently. Parents may, for example, set up trusts for their children which pay out money at set intervals or for set expenses, with the bulk of the money remaining untouchable until the children reach a certain age. Such trusts are also used to ensure that children will have access to financial security in the event of the death of one or both parents.

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A trust may also be established to provide people with access to funds quickly in the event of a death. In a simple example of a revokable trust known as a living trust, family trust, payable on death trust, or Totten trust, the grantor retains control and may continue to pay funds into the trust, and when the grantor dies, the funds in the trust are immediately released to the beneficiary. This bypasses probate, and can provide people with funds when they need them most, during the planning for the funeral and handling of the estate.

With some types of trusts, there may be tax advantages. In the case of irrevocable trusts, for example, because the trustee is giving up the rights to the funds, she or he may be offered a tax break. The specifics of taxation as is pertains to trust accounts can get very complicated, and people would be well advised to consult tax professionals before making any decisions. It is also important to confirm that a tax professional has experience with handling trusts to make sure that trust accounts are properly represented on tax filings.

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Discuss this Article

michenock
Post 12

I need some assistance with the following extraction.

X, Y and K apply on behalf of the XYZ Trust which is a business trust, to BB Bank for a loan. As security, BB Bank requires that a mortgage bond is registered over XYZ Trust’s immovable property.

Explain what BB Bank must confirm to ensure that a valid application for finance was received, and under which circumstances will it be possible that the loan agreement and mortgage bond are set aside and the trustees held liable.

Discuss who will take steps to have security provided on behalf of a trust set aside.

Anthy2309
Post 11

I need some assistance with the following extraction.

X, Y and K apply on behalf of the XYZ Trust which is a business trust, to BB Bank for a loan. As security, BB Bank requires that a mortgage bond is registered over XYZ Trust’s immovable property.

Explain what BB Bank must confirm to ensure that a valid application

for finance was received, and under which circumstances will it be possible that the loan agreement and mortgage bond are set aside and the trustees held liable.

Discuss who will take steps to have security provided on behalf of a

trust set aside.

anon339018
Post 10

What is more common: one or several trust accounts for several business under one property management?

anon323644
Post 9

What is the benefit/disadvantage of a revocable versus irrevocable trust?

anon322754
Post 8

I've had an affair with a man who had a lot of money. His daughter is an attorney and she put all his money in a revocable trust.

He promised me money, but I know I'll never get anything. We had an affair for over 30 years. I feel like a doomed ship in the night.

anon320289
Post 7

If a person puts their money in a trust, do they have to sell their stocks and shares in a company? I guess I am also asking do they have to liquefy their money for lack of knowing a better way of asking?

anon311121
Post 6

My father is taking care of my ill mother, and I believe has been advised to set up an irrevocable trust. I say believe because he refuses to reveal the contents, either on advice of this lawyer or perhaps his own idea. Here I think is the odd part: my sister and I are both well over 50 years of age. My father has given me the power to make any health decisions for him and my mother exclusively. However, he refuses to discuss any contents of his will. My father originally went to this lawyer who has convinced him that he should deal with him and let him be his trustee.

He has been told to sell all his stocks and put them into one account. He has just recently asked me to lend him my paper shredder as he wishes to shred my mother's stock portfolio. I went to ask his lawyer (with my father's permission and in my father's presence) some questions and was shouted out of his office. The lawyer has sent my father an email saying he will only be meeting my sister and I once after my father dies. Comments?

anon262783
Post 5

If for example, my wife inherited a large substantial amount of money, question: would it be better to place the money in a savings account or a trust fund? Explain the difference.

comfyshoes
Post 4

@Moldova - What I often wonder about child trust accounts is if it is better to disclose the contents of the trust to the child or to let them find out upon your death.

I say this because some financial experts feel that your beneficiaries should know what they will inherit while you are still alive so that they know what to expect and will not be any fighting regarding the inheritance.

There is another school of thought that if children are aware of what they will inherit it might make them less productive in life because they know that they have that financial cushion and will rely on that rather than make their own money.

I think that being honest is important when dealing with trust fund accounts but I do wonder if you reveal how much your children will inherit will it have a negative impact on their work ethic? I guess it depends on your kids and what stage they are in life.

Moldova
Post 3

@Crispety - I agree which is why I won’t bother with an irrevocable trust account. You can set up a revocable living trust that allows the trust savings account to pay off a certain amount in installments.

For example, my mother-in-law inherits money from her parent’s trust every ten years. Although she is very good with money, her parents wanted to make sure that she was able to make good use of her money and make it last by offering it in installments.

I think that this can be a smart strategy especially for someone that is a little immature and may spend all of the money right away. It also gives you something to look forward to and since the amounts are in equal installments you know what you are going to receive so you can plan for it.

Crispety
Post 2

@GreenWeaver -I agree and I wanted to add that the huge downside of the irrevocable trust accounts is that they cannot be amended and you lose control over the assets.

People with very large estates might consider these types of trust fund accounts in order to save on taxes, but I rather go with a revocable living trust that I can amend whenever I want.

For example, if you set up an irrevocable trust for two children and then one grows up to be totally irresponsible, you can’t make changes to that trust and the original terms of the trust stand.

This is what bothers me about it because you may change your mind and want to adjust things.

For example, if you set up a irrevocable trust for young children and then one of them grows up and does not want to work or leads a totally irresponsible life then I would not support this life style.

However, I don’t have a choice if I made an irrevocable trust because whatever the terms of the original trust were when they were children will stand. While you have a positive expectancy that your child will be responsible, no one has a crystal ball into the future which is why I don’t like irrevocable trust accounts.

GreenWeaver
Post 1

I was watching a well known financial advisor on one of the television shows mention that everyone should have a will as well as a revocable living trust especially if you have children.

She says that revocable living trust can be amended during your lifetime and the fact that you can bypass probate courts altogether really makes it easier on your beneficiaries.

Sometimes a beneficiary may inherit an asset but will have to sell it in order to pay probate costs without a revocable living trust. This is really sad when the asset is a home that has been in the family for generations.

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