Understanding what you need to support your loved ones during and after your life can be a daunting task. Especially when it comes to the issue of assets and finances. Many people take things like making a will or a trust through a Financial Advisor. But beyond these legal agreements, the question arises as to whether special financial vehicles are necessary. In the case of a trust, it is possible to use a tool called a trust bank account.
What is a trust?
Trusts and wills are both estate planning tools, but they serve different purposes. A will is a legal document that describes what happens to your property after you die. A trust, on the other hand, is a legal entity in which assets are placed. This entity technically owns your assets, with a trustee managing them. A trust involves a settlor, curator and the beneficiaries. Trusts can also be revocable or irrevocable – the former can be amended or even terminated, while the latter are permanent.
What is a trust bank account?
With a trust bank account, a person or entity controls the assets of the account on behalf of a third party or beneficiary. It allows licensors to define the terms according to which they wish the assets to be managed and possibly distributed to the beneficiaries. (An example is setting up an account to pay property taxes or to create a tuition fund.) In this case and in general, trust processes are useful in avoiding the probate process that a will has to go through, which can cost a lot of money and time.
Bank trust accounts hold the assets, but the funds can be used to pay for expenses when the trust is distributed. Having a separate account makes it easier to transfer funds between accounts and keep track of related expenses. Being able to distribute funds quickly and easily is important, especially if the trust was created to deal with immediate needs, such as the death of a parent or guardian, or urgent medical expenses.
How to open a trust bank account
To open an account like this, you will first need to determine if your bank offers these types of accounts, then gather some paperwork and complete an application. If offered, you should educate yourself about most of the information you might otherwise ask for on any bank account: whether there are balance requirements, fees, minimum opening deposits, etc. The documents you will need may include valid identification, tax forms, the name of the trust, and any other current information about it. In some cases, you can even convert an existing bank account to a trust account.
Since a bank trust account is a deposit account that can be opened by a trustee for the benefit of a beneficiary, it protects the assets during and after the life of the settlor. As such, it must have a specific purpose, a designated beneficiary and a list specific duties for the trustee according to the wishes of the grantor. Opening the account will require actual written trust with a social security or tax ID number. (It may also require the services of a lawyer.)
This means that whether or not a grantor opens a trust account to fund it for beneficiaries or prepare it for a trustee, the trust agreement must first be created with what is called a trust certification ( an abridged version of the full trust agreement generally used in official documents). Only the settlor or settlor of the trust and their trustees are authorized to create a current trust account.
Fund a bank trust account
There are many ways to fund a trust current account. The grantor or trustee shall fund the account by personally depositing funds from any source at its disposal, according to the plan established by the trust. Other ways to fund a trust include savings accounts, life insurance payments, retirement funds, etc.
The trustee and the settlor should discuss how the account should be funded so that the trustee can act according to the wishes of the settlor. Only a designated trustee will be able to access a current trust account. Expenses they might need to consider include debts, utility bills, property taxes, other taxes, insurance costs, and attorney fees, to name a few. Since this is basically a bank account, it will be insured by the FDIC, but the insured amount depends on a few factors including the type of trust.
Final result
A will is important to indicate what should happen to your assets after your death, but if you need a financial account to manage the assets on behalf of your beneficiaries, a confidence and a trust bank account might be more suitable for you. Talk to your banking representatives and / or a financial advisor to see if this approach is right for you.
Estate planning tips
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Determining your general estate planning needs is an important step in making sure your financial affairs are in order, especially if something happens to you that you are unable to make your own decisions. Use our comprehensive guide to estate planning to understand all the components of estate planning.
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A Financial Advisor could help you build an estate plan based on your financial needs and goals. The free SmartAsset tool connects you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
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