What Is a Bank Trust Account?

By Tom Streissguth

Most banks offer trust accounts as an optional service. In a trust account, a trustee controls funds for the benefit of another party - an individual or a group.The bank trust account is a useful way to convey and control assets on behalf of a third-party owner. One such trust, a Totten trust, allows a trustee to control the assets of an estate, while a real estate trust holds funds for payment of costs associated with a property.

Trustees and Assets

With a bank trust account, the bank serves as custodian and a trustee keeps legal control of assets in the account. These assets can include cash, savings bonds, stocks, bonds, mutual funds, real estate and other property and/or investments. A trustee may be a family member or a professional such as a lawyer or accountant who has accepted responsibility for handling the trust account.

Account Name

On the directions of the trustee, the bank sets up the trust account with a name and trustee designation. This includes “as trustee for the benefit of” to indicate the individual or organization for whom the trustee is handling the assets. A minor child who has inherited from a parent, for example, may not yet be competent to handle money on his own behalf. In this case, a bank trust account allows a trustee to authorize payments and deposits for the minor.

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Beneficiaries and Totten Trusts

The trust account may also carry the name of a beneficiary. This is the individual or group who will take legal control of the assets on the death of the trustee (also known as the settlor). These trust accounts are also known as "Totten trusts," after an important case that settled their legality in the early 20th century. In some states, a Totten trust is known as a “POD” account, meaning “payable on death” to the named beneficiary. Such a trust is covered by the Federal Deposit Insurance Corporation (FDIC), like other deposit accounts, and does not have to clear probate in order to pass the funds to the beneficiary on the death of the trustee.

Legal Authorities

While handling a bank trust account, a trustee may make changes to the account. He may name another beneficiary or a successor trustee. He may close the account or open a sub-account to which he may transfer some or all of the assets. If he is handling the account by the terms of a bequest or a financial trust set up according to law, he must follow the directions in the will or other document that established the trust.

Real Estate Trusts

Another kind of bank trust account handles money for the benefit of a property owner. Funds are placed in the account for the payment of real estate taxes, property insurance and other liabilities, and paid to the appropriate agency when the bills become due. In this manner, a monthly mortgage payment can include payment for other costs and the pro-rated funds placed into the trust account when the homeowner's payment is received.

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