What Is a Bank Trust Account?

By Stephanie Kurose, J.D.

What Is a Bank Trust Account?

By Stephanie Kurose, J.D.

The majority of banks have trust departments and offer their customers the option of opening a trust account. A trust account allows a person or entity to control the account's assets on behalf of a third party or beneficiary, such as setting up a college tuition fund or paying property taxes. One of the main benefits of a trust account is that it allows the trust's creator, called the "grantor," to establish their own terms for how they want their assets managed and distributed to the beneficiaries. Trust accounts also usually avoid the probate process, which can be costly and time consuming.

Man in suit talking to couple across from table with documents strewn on it

Custodians and Trustees

In a trust account, the bank acts as a custodian of the account while the trustee has legal control over the account's assets. Assets can be anything from cash, stocks, and bonds to real estate and other types of property.

The trustee has the responsibility of managing the account's assets. The trustee can be a trusted family member, lawyer, or accountant who accepts the responsibility.

Responsibilities of a Trustee

The trustee is responsible for managing the trust's assets according to the best interest of the beneficiaries and distributing assets to the beneficiaries according to the trust agreement. A trust can have a single beneficiary or multiple beneficiaries, and a beneficiary can be an individual or another entity that takes legal control over the account's assets upon the death of the trustee.

A trustee has the legal authority to modify the trust account to add another beneficiary or a successor trustee. In addition, they can close the account or open up subaccounts and transfer the assets into them. Again, if the trustee is managing the account on behalf of a trust agreement, they must do so according to those terms.

Managing a trust account is a significant responsibility. Because trustees generally owe a fiduciary duty to the trust's beneficiary, they can be held personally liable if they breach this duty.

Trust Agreements

A trust agreement lays out the terms of the trust and designates the trustee and beneficiary. A bank will require you to bring in a copy of the trust agreement that formally established the trust as well as some form of personal identification that identifies you as the trustee.

Depending on the type of trust account, the bank may require different forms of ID, such as a photo ID or a copy of your tax records. You should check the bank's exact requirements for this. Once the bank receives this information, the trustee can set up the trust account and transfer assets into it. The trustee's name is the name on the account.

Real Estate Trusts

A common type of trust account is a real estate trust, which is established for the benefit of a property owner. For a real estate trust, funds are deposited into the trust account and used to pay real estate taxes, property insurance, and other home owner liabilities.

Bank trust accounts are easy to set up as long as you have the required documentation, which is usually a trust agreement and two forms of identification. Contact your desired bank custodian to find out their specific requirements.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.