A trust account is a bank account set up expressly for the benefit of someone else. It can be used to hold money, property or other assets. The trustee, or person responsible for the account, has a legal responsibility to manage the budget according to the terms specified by whoever established it.
Types of accounts in trust
Payable on death (POD) is one of the most common types of accounts in trust. This type of account is designed to transfer assets to a designated beneficiary upon the death of the person who set it up. It offers an effortless way to pass on property or money without going through probate court.
Another common trust account is the Uniform Transfers to Minors Act (UTMA). This type of trust is usually designed to hold property or other assets on behalf of a minor until they reach the age of majority. The trustee has a legal responsibility to manage the account by the terms specified by whoever established it, such as investing it for the benefit of the minor.
What are the benefits of a trust account?
One of the main benefits of this estate planning essential is the ease of transfer. Since the assets are already in an account, they don’t have to go through probate court. This can save time and money when transferring assets after death or for other purposes.
Trust accounts also provide asset protection from creditors and litigation if the funds are held in an irrevocable trust. This means that creditors can’t access the assets in the trust account unless they are specifically named as beneficiaries.
Finally, a trust account can provide tax advantages. Since most trusts are not subject to income taxes, funds held in the account may get invested without worrying about incurring capital gains taxes or other taxes that would otherwise apply to investments.
The type of trust account that is best for you will depend on your circumstances. For instance, if you are setting up an account for a minor, then the UTMA might be best. But it’s essential to start thinking about setting up a trust account early.