A trust account is an account that is managed by a trustee who acts on behalf of a third party. The trustees are selected by the investors and they have to act their best for the best results to the beneficiary. Parents often open trust accounts for their children. The parents act as fiduciary in such cases.
There are various types of Trust Accounts −
Living Trusts − These trusts are revocable when the trust owner is alive. For example, the parents in the example above have full control while they are alive.
Testamentary Trust − These trusts are enforceable after the death of the trust creator (the settlor).
Revocable Trust − In such trusts, the settlors can change the terms and close them if necessary.
Irrevocable Trust − These trusts are irrevocable. Once the trust is made, the ownership of the fiduciaries is forfeited.
Following are the steps to set up a Trust Account −
The first step is to select the type of trust. Once the type is selected the right form should be filled up.
The second step consists of appointing a trustee. A trustee can be anyone other than the first and second parties and should be mentally competent.
Determination of Assets comprises the third step. Here all assets that should be kept in the trust account are put in the trust fund. The trustee is now the legal owner of the trust property.
The fourth process consists of drafting and filling up the documents.
The final step is to go to the bank with the trust and give them the authority to manage the trust.
There are a few points one must remember while opening a trust account. The first is the type of trust one must be confident in. As trusts deal in assets, one must be clear about the financial goals before setting up a trust account.
The selection of managers and how to run the trust while you are alive and after your death is a consideration too. The managers should be aware of the funds invested in the trusts so that beneficiaries do not feel the burden on the death of the trust creator.
Some trust accounts not only make life easier but are also easier to manage too as no probate is required during the distribution of funds. In certain instances, trusts may help in tax savings too.
Trusts may help individuals obtain peace of mind. They can leave properties and assets in the trust that can help their beloved ones during their life or after death.
There are various kinds of Trusts depending on their usefulness.
Trust should be made depending on the goals in mind.
Trusts can help in tax deductions in some cases.