Trusts are used for multiple purposes such as estate planning, property management, inheritance planning, and so on. Regardless of the reasons why a trust is created, it always has to have a bank account. At the same time, the trustee doesn’t have to open a trust bank account in some cases.
When does a trust have to set up a bank account and when is this unnecessary? Please read on to find out and contact our experts if you need more information on the topic.
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What is a trust account?
Any trust needs a bank account for the trustee to be able to manage the assets in trust. It can be a current account, a savings account, a fixed-term account, or an investment account.
Trust bank accounts are opened in the name of the trustee who manages the property in trust for the benefit of the trust beneficiaries.
What you should know about trusts and trust bank accounts
- A trust is a legal agreement between two people or entities. This first entity put their assets in trust and the second entity manages the assets in the interest of the trust beneficiaries. The first person or entity is called the Trustor and the second one is called the Trustee. Depending on the trust type (revocable, irrevocable, discretionary, and so on), the Trustor may act as the Trustee. Moreover, the Trustor can be the only beneficiary of the trust or one or its beneficiaries.
- When a trust is created, the property rights are transferred to a trusted agent who will manage the property. A natural person can act as the Trustee but often a company (a legal firm) fulfills the role. The Deed of Trust outlines the terms and conditions of the property management as well as the relationships between the Trustor, the Trustee, and the Beneficiaries.
- After the property is put in (irrevocable) trust, it ceases to legally belong to the Trustor. This fact frees the Trustor from taxes on the profits derived from the property. This is one of the reasons why wealthy people often create irrevocable trusts in offshore jurisdictions.
- In addition to that, when the assets in trust are inherited after the Trustor’s death, no inheritance tax is payable.
- All property held in trust is managed in the interests of the trust beneficiary or beneficiaries. As the beneficiaries are entitled to obtain the profits that the property generates, they are taxable on the income. The Trustor can be the (a) beneficiary of the trust. More often, however, trust beneficiaries are Trustor’s relatives or close friends.
- If money or securities are put in trust, a trust bank account can be opened to keep the money (securities) there.
- The trust bank account has to be opened in the name of the Trustee. The Trustee can use the bank account to pay the trust bills and distribute profits to the trust beneficiaries.
A trust is an efficient property management instrument. Various kinds of assets can be put in trust including money, real estate, art objects, bank accounts, business companies, and so on. Anyone who derives an income from the trust is taxed on the income. However, the property in trust is not taxed until the moment when it is distributed to the trust beneficiaries.
Some large banks (but not all of them) allow opening any type of account for a trust. Please request a free consultation with our experts if you would like to open an account in a foreign bank for your trust.
Types of bank accounts for a trust
Depending on the main reason why the trust has been created, it can have a bank account of one of the following types:
- A deposit account can be used to pay taxes on the real estate kept in trust and make insurance premiums.
- A corporate bank account for the trust whose Trustee is a legal entity rather than a natural person. This is the case when the trust doesn’t have to open its own bank account because the managing company (the Trustee) will already have one. The corporate Trustee can use their company account for all trust-related payments in accordance with the terms and conditions outlined in the Deed of Trust.
- A trust account can be used to hand down the assets to the Trustor’s heirs in accordance with his/ her instructions. In addition to that, the Trustee can use the trust account to cover the tuition of the beneficiaries, or sustain an underage beneficiary, or cover the medical costs of a trust beneficiary, and so on. The trust account can be in active use during the Trustor’s lifetime.
- Investment or broker’s trust account will allow accumulating and growing the incomes derived from the property kept in trust. The account can also be used to distribute the profits to the trust beneficiaries.
Do you have to open a trust account? What kind of trust account should you open? Our experts will gladly answer these questions and help you to open a foreign bank account remotely, including a trust account.
How you can open a bank account for a trust
A trust account is a sort of a moneybox where the Trustor can keep his/ her financial assets and securities that he/ she has put in trust. The bank will provide additional security to the assets kept in trust. Besides, the banking-related legislation of the country where the bank is located will bring further protection to the assets.
To open a bank account for your trust, you will have to take into consideration several factors and take several steps. The factors and steps include the following one:
- Define the type of the trust. The trust can be revocable or irrevocable, discretionary or non-discretionary, etc. If can be created for inheritance planning or for investment purposes, etc. The type of the bank account will largely depend on the type of the trust.
- Appoint the Trustee. A natural person can act as the Trustee (the law allows that) but in most cases, legal companies fulfill this role. The Trustor can also act as the Trustee him/ herself but in this case, some undesirable tax consequences may arise. It would also be a good idea to have an ‘auxiliary’ trustee who can step in if the acting trustee suddenly dies or becomes unable to perform the duties due to some other reason.
- Collect the application documents. When a trust account is opened in a bank, the Trustee acts as the account holder. If you would like to protect your assets from foreign law courts and creditors in the most secure way, we recommend that you should consider the opportunity to set up an offshore trust in Nevis in a combination with an LLC.
- Transfer the assets in trust to the bank account. You can deposit money, stocks, bonds, and other securities with the bank. You can but works of art, jewelry, and other suchlike objects in a safety deposit box in the bank vault.
Please find out what types of trusts you can use for asset protection and estate planning in 2023.
Documents required for opening a trust account
The list of documents required to open a trust account will be different depending on the particular bank. All banks, however, have on uniform requirement: the trust account shall be opened in the name of the Trustee. Normally, the bank will want to have the following documents:
- The Trust Deed signed and notarized.
- The list of trust beneficiaries.
- Amendments to the Trust Deed (if applicable).
You can find out if a foreign bank is prepared to open a trust account for you prior to filing an application for bank account opening. It is possible with the PRE-APPROVAL service that we will gladly provide to you.
What type of trust account should you choose?
The type of the bank account that you should open for your trust will depend on your main goals and the types of transactions that you are going to use the account for. Please mind that in case you have a corporate Trustee (a legal firm, for example), it should have a company bank account of the right type. Your trust can use the following types of bank accounts:
- A classic deposit account. You can use it for regular payments to the trust beneficiaries, payment of taxes, or for transactions related to the management of the property kept in trust. Having a deposit account allows ordering a debit card too.
- A savings trust account. A savings account or a fixed-term account allows earning on the interest paid on the deposit.
- A broker’s account. If you have securities kept in trust, a broker’s account is required for their management.
- Investment account. If you have created a trust for investment purposes, an investment account with a bank is a secure financial instrument that allows earning more than you can earn with a savings account, for example.
Please contact us if you would like to obtain professional advice on choosing the bank where you can set up an account for your trust. You are also welcome to use the pop-up chat box to ask us questions or leave your contact information.
What kinds of payments can I make with the help of a trust account?
You can use your trust account to make payments of all sorts. These include:
utility bills;
insurance premiums;
property taxes;
professional service fees;
tuition fees, etc.
Can the Trustee withdraw money from a trust account?
He/ she can if the Trustor and the Trustee’s identities coincide, that is, if it is the same person. If the trust is revocable, the Trustor is free to add money to the account or withdraw it from there. If the Trustee is a person different from the Trustor, he/ she can use the trust account only for current payments (taxes, insurance payments, attorney service fees, trust maintenance fees, etc.). Besides, the Trustee can use the account for making payments to the trust beneficiaries following the instructions outlined in the trust deed.
Can you transfer money from a trust account to a personal account?
You cannot if you are the Trustee. Trustees can use the trust account only for trust-related purposes such as distributing profits to the beneficiaries and covering the trust maintenance costs. Trustees cannot use the trust account for their personal purposes. The Trustor can transfer money from the trust account to his/ her personal account if the trust is revocable. The opportunity also becomes available when the trust is liquidated (closed). If the trust is irrevocable, the Trustor doesn’t have access to the property kept in trust including bank accounts.
What bank is the best for trust accounts?
A large long-standing bank would be the best band for a trust account. Please bear in mind, however, that not all banks are willing to open accounts for trusts.
