A trust account is an estate planning tool that many people use in addition to, or instead of, a will to control the disbursement of their assets. Trust accounts have certain advantages over wills in that they are not subject to probate and prevent the courts from taking control of a person’s assets should they become incapacitated. When setting up a trust account, the first steps are to choose a trustee and decide whether the account should be irrevocable or revocable. The person setting up the trust account must also determine which assets should be transferred into the trust account. A financial institution representative or an attorney can assist in setting up a trust account and help decide the terms under which the assets will be distributed.
A trustee is the person, people, or any institution who manages the account and asset disbursement. The trustee carries out the terms set by the account founder. The person setting up a trust account is often a trustee of the account. Trust accounts can be either irrevocable or revocable. An irrevocable trust account, once established, cannot be changed by the account founder without permission from the beneficiary. A revocable trust account can be changed at any time by the account founder without permission from the beneficiary.
When an individual is setting up a trust account, he or she must decide what assets are being transferred to the trust account. Common assets such as money and property are transferred from the account founder to the trust account. Businesses, stocks, patents, copyrights, and royalties can also be transferred. It
is not required to transfer all assets to the trust account, though this is common practice when setting up a trust account instead of a will.
At the time the trust account is being established, often with the assistance of a financial institution representative or an attorney, the account founder will determine the terms of the account. The terms describe how assets will be transferred into the account and then how they will be disbursed. Upon setting up a trust account, the account founder can set terms that take into consideration the addition of new beneficiaries, such as grandchildren. The terms of the trust not only determine at what rate and by what time assets will be transferred in to the account, but also under what conditions the assets will be disbursed to the beneficiaries. It is possible for the assets of the trust account to go to an alternate beneficiary if the primary beneficiary does not meet the terms of the trust account.
A trust account gives an individual control over their assets not only during their lifetime, but after their death as well. The terms set when setting up a trust account will dictate how the trustee of the account disburses the assets to the beneficiaries. Since there can be some tax advantages, setting up a trust account is becoming a common substitute for writing a will.