Trust Accounts
Trust accounts are special types of accounts that often operate like individual accounts, with some special features. Trust accounts are most commonly used to help individuals ensure the smooth passing of their assets to their heirs upon their death, as well as to minimize possible estate and inheritance taxes. Sometimes, they are also used to provide for a minor child or a disabled loved one, or to keep an irresponsible person from wasting needed money.
The term trust comes from the concept that these assets are held by someone temporarily for someone else to receive at a future date. The person who sets up the trust and will be putting assets into the trust is called the trustor (also known as the grantor, donor, or settlor). The person appointed to care for the assets is called the trustee. The person who will eventually receive the assets is the beneficiary. A beneficiary can be a minor, an adult, or an adult who is mentally incompetent. Like estate accounts, trust accounts are considered custodian accounts, because the trustee is managing the account for the beneficiaries.
Types of Trust Accounts
There are many different ways to categorize trust accounts. For the exam, learn the following distinctions: revocable versus irrevocable, living versus testamentary, simple versus complex, and charitable versus non-charitable.
Revocable versus irrevocable trusts. The most common form of a trust account used is a revocable living trust, which is a trust that can be revoked (eliminated) at any time prior to death by the person who owns the assets (the trustor). In the event that the trust is revoked, ownership of the assets reverts back to the person to whom they originally belonged.
For the exam, the most likely question you’ll encounter will have something to do with who can initiate transactions, control the transfer of funds and disbursements, etc., from a trust. The answer is the trustee (not the trustor or beneficiaries), regardless of who or