2.1.2.8. 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 deaths, 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 it is called the trustor (also known as the grantor, donor, or settlor). The person appointed to manage 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. The trustee will have trading authority in the account, but a third party could also have trading authority if the individual is listed in the trust agreement.
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. Note that non-charitable trusts refer to all other trusts that are not charitable trusts.
Revocable versus irrevocable trusts. The most common form of trust account 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 be