What Is a Trust Checking Account?

A trust checking account is a bank account set aside to hold assets in-trust for beneficiaries, as well as funds for paying expenses and miscellaneous fees during the distribution and dissolution of a trust agreement.

Either the grantor/settlor of a trust or their trustee can set up a trust checking account, and these accounts make it easier to move liquid funds into the accounts of designated beneficiaries as per the terms of the trust agreement, as well as cover the fees and expenses associated with the management of a trust.

Trust checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC) and can be funded via a variety of sources and accounts. However, the process of doing so requires one to understand what a trust is for, and how the trust itself differs from a trust checking account.
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What Is a Trust?

A trust in the estate planning sense generally refers to the trust agreement set up between a grantor and their trustee for the benefit of designated beneficiaries. This agreement is both an entity and a set of documents explaining the terms of the trust. Trust entities are set up to hold assets and funds “in-trust” for the benefit of the beneficiary, which can sometimes be the grantor themselves.

In most cases, however, the point of a trust is to move assets and funds from one generation to the next without having them go through the probate process, or to minimize the tax burden of passing away by ensuring that your estate’s total value remains within the exemption limit of the federal estate tax.

Trusts may be living or testamentary, which determines when they go into effect, and are also generally revocable or irrevocable:

Living Trusts

A living trust goes into effect immediately upon being signed, witnessed, and notarized, at which point all items held in-trust are part of the trust rather than within the grantor’s total ownership.

Testamentary Trusts

A testamentary trust, on the other hand, only goes into effect after the grantor has died.

Revocable Trusts

Revocable trusts are more flexible, and easily amended. They offer fewer protections against creditors, however.

Irrevocable Trusts

Irrevocable trusts completely separate you from your property, thus providing a level of asset protection. However, they are much harder to reverse or amend.
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As an entity, a trust can essentially hold funds, assets, and property. Many things can be funded into a trust by amending ownership papers and writing deeds – for example, part of moving a home into a trust involves changing the name on the title from “John Smith”, to “John Smith’s Living Trust”.

There are limits on what can be funded into a trust, of course. Accounts and property with existing beneficiaries attached to them generally cannot be moved into a trust or other estate planning documents, including retirement accounts and life insurance policies.
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Trusts vs. Trust Checking Accounts

To manage a trust without retaining control over its contents, a grantor must pass some level of control over to a designated trustee. The trustee’s job is to oversee the management and care of the funds, assets, and properties within the trust, and eventually distribute them to the beneficiaries of the trust, as per the terms of the agreement.

Unlike a will, a trust must not immediately be distributed upon the grantor’s death. Sometimes, trusts are set up to only begin distribution once the beneficiaries fulfill a certain obligation or reach a certain age. Some trusts can be set up to disperse funds piecemeal, over years.

As such, trustees often require certain discretionary funds to cover fees and expenses. Trust checking accounts are set up not only to hold liquid funds for the beneficiaries themselves, but also to fund the trustee’s duties while overseeing the trust.

Sometimes, trusts may include safety measures to ensure that a trustee fulfills their fiduciary duty, such as a trust protector, who retains the power to fire the trustee should they be engaging in any kind of fraud, including purposefully prolonging the trust’s duration in order to extract more fees from it.
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How to Open a Trust Checking Account

When planning to open a trust checking account, either to fund it for your beneficiaries or prepare it for your trustee, you will have to first create both the trust agreement and a paired Certification of Trust. The Certification of Trust or Abstract of Trust document is a shortened version of the full trust agreement which is generally used in official paperwork to provide an important abbreviated understanding of the terms of the trust, or to provide excerpts of the trust.

Only the grantor/settlor of the trust, and their trustees are authorized to create a trust checking account. When talking with bank employees about setting one up, be sure to present the Certification/Abstract of Trust as well as valid identification to prove that you are the grantor or trustee in question. Some banks require two valid IDs, so bring several just in case.

Another common requirement is a copy of your Request/Application for Employer Identification Number to the IRS and corresponding Employer ID Number, through Form 224. Other requirements differ from bank to bank, including minimum balance requirements and associated fees. It would be a good idea to call ahead and compile everything beforehand.
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How to Fund a Trust Checking Account

As grantor or trustee, you will have to fund the account by personally depositing funds into it from various sources as per your trust plan. You can also set your trust checking account as the beneficiary of other accounts that are payable-on-death, including (but not limited to):

• • • Savings accounts
    • Life insurance payouts
    • Retirement funds
    • And more

When setting up a plan to fund a trust checking account, it is important to retain copies of everything, and cautiously track every step. If you plan to have certain funds only pass into your trust checking account after you die, you will have to make sure this is outlined in your will, so the executor of your will can ensure those funds pass into your trust.
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Working With an Estate Planning Professional

In matters related to the setup and execution of a trust, it pays to work with an authority on trust documents and trust types. Trust checking accounts are just one part of a greater trust plan, and there are other elements to consider, such as:

• • • Funding property into a trust
    • Creating a pour over will
    • Looking into other critical estate planning documents

The rules, regulations, and best practices differ from area to area, as well. Be sure to discuss any estate plans with a legal professional.