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Meaning of Account in Trust
An account in trust can also be called a trust account which is any kind of financial account opened by an individual and handled by a particular trustee for the gains of a third party based on agreed terms. A typical example of this account is a bank account opened by a parent for the gains of their child and governed by rules as per when the child can access the funds or assets in the account with any income it generates. In some instances, the trustee that manages the funds and assets sits as a fiduciary which means he has a legal duty to manage the account perfectly and the assets in the best interest of the beneficiary.
How the Trust Account Works
The trust account can handle different assets which include bonds, stock, cash, mutual funds, real estate, as well as other investments and properties. The trustee can be different too. It can be the person who opened the account or the person who is made the trustee, it can also be a form of institutions such as banks.
The trustees may choose to make some changes to the account in trust. It might include adding another beneficiary or naming a successor to the trustee. He might even choose to close the account or even open a subsidiary account in which they may choose to transfer all or some of the assets in the account in trust. Nevertheless, the custodian must pursue the orders transcribed in the certificate that established the account in trust.
The Types of Accounts in Trust
The account in trust is different relying on the type of account, the terms written in any trust agreement, and the applicable state or federal laws.
Uniformity Gifts to the Minor Acts (UGMA)
This type of account in trust form lets minors legally own the assets which are saved in these accounts. Though they can’t have access to this account until they reach a certain legal age. This type of account in trust in mostly opened by parents to find their children’s higher education expenses as well as secure some certain tax protections. This account is usually handled by a custodian who is appointed by the donor. He must properly manage the account for the gains of the minor. They may choose to invest the funds, or withdraw the money to a limited amount for the Minor’s care and needs. Contributions can also be sent to the account without limits.
Payable on Death
The payable on death trust account can also be called Totten trust. It is an important account with the names of beneficiaries who are legal and allowed to take possessions of the trust’s assets and the income after the individual who opened the account is dead. This type of account is covered by the federal deposits insurance corporation (FDIC) which is a traditional bank account. Adding to this, the account does not require clear probate for assets to transfer to the legal beneficiary after the death of the account owner. There are some occasions that deprive the beneficiary of collecting the full value of the account after the exit of the account owner. On some occasions, the spouse of the deceased may be entitled to only half of the assets but is not entitled to funds that were paid in before their marriage. In another form, the beneficiary does not receive any gain from a joint account if the owner is still alive. It can only be paid after the last surviving owner is dead too.
Housing Account in Trust
This type of account is mostly opened by a mortgage lender who uses this account to pay property tax and insurance on behalf of the homeowner. It is also known as the escrow account and the funds deposited in it are always included in the monthly mortgage payment. The two types of this account are the purchase account and the refinance account. The purchase account handles account that has to do with the buying of a home and it’s handled by escrow agents. The earnest cash presented by the buyer to the seller and other real estate transaction fees like agent commissions and loan fees is handled in a purchase escrow account.
The refinance escrow account which is almost like the purchase account handles fees that have to do with transactions like the refinance of a home. These fees include appraisal fees and attorney fees.
Setting Up an Account in Trust
Before you set up an account in trust, you should go through the options available and choose the one which best suits your needs. There are a lot of details to consider beforehand. Such as knowing who you want to manage the trust with and how you want it to be managed while you’re alive or upon death too. Talking about death, you should know whom to choose as your beneficiary or beneficiaries and also how you want them to get the assets. Know the assets the beneficiary will handle and the terms they can be shared or disposed of. When these details are confirmed, you can now fill the papers appropriately and follow the rules of your state. It is always recommended to consult an attorney to make sure that the account is formed according to your preference.
The Benefits or Gains of an Account in Trust
A lot of people prefer the account in trust as it does not postpone, they enable their assets distributions quicker and easier, and it provides favorable tax benefits which result in a lower tax liability. It ensures the wishes of the donor are carried out during their lifetime and even in their death. They can dictate how their assets should be managed, how they should be shared and the people to manage them.
