To further break down what a trust account is, it is an arrangement that is made legally that assets or funds are kept by a third party that can be a group or individual. A settlor or grantor is what the person that makes the trust account is known as.
The main aspects of a trust are:
̢РThe trust has no power without a person funding the trust or transferring the assets into the trust.
̢РAny adult that is competent mentally is eligible to be a trustee but has to be someone that the grantor accepts and trusts to handle the trust account.
̢РA trustee, unless otherwise stated, has the ability to transfer assets, close current accounts, open or create a sub-account, make account changes, add beneficiaries, or add a trustee.
̢РThe first thing that a trustee has a fiduciary duty to do is to think about is what the best interests the beneficiaries have when making a decision.
̢РDistributions, as well as other expenses related to the beneficiary of the trust, have to be paid out of the trust account.
̢РThe trustee will be held accountable to handle the tax returns annually and can also be responsible for filing accountings regularly based on the beneficiaries request and the law of the state you are located in.
Trust Account Types
With multiple types of trusts that often have different purposes, it can be a little confusing. The good thing about trust accounts is that all accounts typically function in the same manner. Below are some of the different types of trust accounts with a brief explanation of the trust account.
Revocable living trusts are a common type of trust account and are used for planning an estate. The living trust will not be required to go through probate after a person’s passing, which, at no additional cost, makes for a quicker process for asset distribution. The probate process makes a last will and testament public knowledge, whereas a trust allows this to stay private.
An escrow account is a trust account type that is found most often in real estate. An escrow account permits a bank that has mortgage-lending opportunities to have funds for bills that are specified by the buyer.
A life insurance policy payout is another manner in which a trust is useful for a minor that inherits the property or the policy. This allows the trustee to keep the assets for a specific purpose, like education or medical needs. When the minor is at the age determined by the trust funds, they will then have access to the funds.
Before getting any trust fund, it is essential to look into what kind of laws are involved for the state you are in regarding trust funds.
Trust Account Set up
After deciding what type of trust fund is the right one for you, you will need to start thinking about three critical questions. These questions are:
̢РWho will be your trustee?
̢РWho will the beneficiary or beneficiaries?
̢РWhat assets will be placed in the trust?
Be aware if you choose to name yourself as a trustee, then you should consider adopting an alternate trustee in case of something happening to you. It is also important to remember that transferring the assets to the trust can be a little complicated, mainly due to whether or not the property in question has a title that is legal or not. This is why it is vital to ensure that your trust is adequately funded.
After the decisions are all made, the final step is the paperwork that is required and filing the paperwork. This process varies a bit based on what state you are located in. There is not a jurisdiction that needs you to involve an attorney in this process or the management of a trust account, but it is a good idea to get legal guidance. The method for setting up a trust account can be a little complex, especially on your own.
