What a trust bank account is
A trust bank account is a deposit account held in the name of a trust rather than in your personal name. The trust itself is the legal owner of the account, and a person you name—called the trustee—has the power to manage the money inside it. The trustee can deposit funds, withdraw funds, and pay bills from the account, but they do not own the money. They hold it and use it according to the instructions written in the trust document.
The person who creates the trust and funds the account is called the settlor or grantor. The people who will eventually receive the money are called beneficiaries. A trust account separates legal ownership from control: the trust owns the account, the trustee controls it, and the beneficiaries have rights to it—but those rights depend entirely on what the trust document says.
Trust accounts are commonly used to manage money for minor children, to avoid probate after death, to manage assets if you become unable to, or to distribute money according to specific conditions. The bank does not make decisions about who gets the money or when—that is all written into the trust document before the account is opened.
Key Takeaways
- A trust account is owned by the trust itself, not by the trustee or beneficiaries, and the trustee's job is to follow the instructions in the trust document.
- The trustee can move money in and out of the account but cannot use it for their own benefit unless the trust document explicitly allows it.
- Trust accounts do not go through probate when the settlor dies, which can save time and money compared to accounts held in a personal name.
- You will need to provide the bank with a copy of the trust document and proof of the trustee's identity before opening the account.
- Different banks have different rules about trust accounts, and some require a minimum balance or charge a monthly fee.
How the trustee's authority works
The trustee's power comes from the trust document, not from the bank. The document spells out exactly what the trustee can and cannot do with the money. A trustee might be allowed to spend money on a child's education, medical care, and living expenses, but not on a vacation. Or a trustee might be required to hold the money untouched until a beneficiary reaches a certain age. The bank's job is to process the transactions the trustee requests; the bank does not police whether the trustee is following the trust document.
If a trustee misuses the money—spending it on themselves when the trust forbids it, or refusing to pay a beneficiary when they should—the beneficiary can sue the trustee in court. The bank is not responsible for enforcing the trust terms. This is why it matters that the trust document is clear and specific about what money can be used for and who makes those decisions.
A trust can name more than one trustee, and some trusts require all trustees to agree before money can be withdrawn. Others name a successor trustee who takes over if the first trustee dies or steps down. The bank will ask for documentation showing who has authority to sign on the account.
Opening a trust account at a bank
To open a trust account, you will need to bring the trust document to the bank, along with identification for the trustee. Many banks require a certified copy of the trust document, not just a photocopy. Some banks will accept a certification letter from the attorney who drafted the trust, or they may ask you to have the document certified by a notary public. Call the bank ahead of time to ask what form they need.
The bank will also ask for the trustee's Social Security number or tax ID, proof of address, and sometimes a second form of ID. If the trust is a revocable living trust (one that can be changed during the settlor's lifetime), the bank may ask whether the settlor is still alive and whether the trust is still revocable. This information affects how the account is insured and whether the account will need to be retitled after the settlor dies.
The account will be opened in the name of the trust—for example, "The Smith Family Trust, dated January 15, 2020, by trustee John Smith." The bank will issue a tax ID number for the trust account if one does not already exist. The trustee will receive a debit card and checkbook in the trustee's name, and statements will be sent to the trustee's address.
FDIC insurance on trust accounts
The Federal Deposit Insurance Corporation (FDIC) insures trust accounts differently than personal accounts. A personal savings account is insured up to $250,000 per depositor per bank. A trust account is also insured up to $250,000, but the insurance covers the trust as a whole, not each beneficiary separately.
If a trust names multiple beneficiaries and each one has a separate, identifiable interest in the account (meaning the trust document says exactly how much each beneficiary gets), the FDIC may insure up to $250,000 per beneficiary. This is called "pass-through" insurance. For example, if a trust holds $500,000 and names two beneficiaries who each have a right to $250,000, each beneficiary's share may be insured separately. However, the rules are complex, and the FDIC's website has a calculator to help you figure out your coverage.
If you have more than $250,000 in a trust account and want full coverage, you can open accounts at multiple banks, because FDIC insurance is per depositor per bank. A trust account at Bank A and a trust account at Bank B are insured separately.
Taxes on trust account income
A trust account generates income—interest on savings, dividends on investments held in the account, or rental income if the trust owns property. That income is taxable, and someone has to pay the tax. Whether it is the trust, the trustee, or the beneficiaries depends on whether the income is distributed or kept in the account.
If the trustee distributes income to the beneficiaries, the beneficiaries pay tax on it. If the trustee keeps the income in the account, the trust pays tax on it. The trustee must file a tax return for the trust each year if the trust has income over a certain threshold (currently $600 for most trusts, though this varies). The trustee will receive a Form 1041 from the bank or investment company, and the beneficiaries will receive a Schedule K-1 showing their share of the income.
This is different from a personal account, where you pay tax on all the income yourself. With a trust account, the tax responsibility is split based on how the money is used. A tax professional or the attorney who drafted the trust can explain the specific tax consequences for your situation.
What happens to a trust account after the settlor dies
If the trust is a revocable living trust (one that can be changed during the settlor's lifetime), the account does not go through probate when the settlor dies. The trustee simply continues to manage the account according to the trust document. The trustee may need to provide the bank with a death certificate and proof that the trust is now irrevocable, but the account stays open and the money stays in the trust.
This is one of the main reasons people use trust accounts: to avoid probate, which can take months or years and cost thousands in legal fees. The money can be distributed to beneficiaries much faster because there is no court process.
If the trust is an irrevocable trust (one that cannot be changed), the account was never in the settlor's personal name to begin with, so the settlor's death does not change how it works. The trustee continues to manage it according to the trust terms.
Differences between trust accounts and other account types
| Account Type | Owner | Who Controls It | Goes Through Probate |
|---|---|---|---|
| Personal account | You | You | Yes |
| Joint account | You and another person | Either person can withdraw | No (passes to the other owner) |
| Payable-on-death account | You | You during your lifetime | No (passes to the named person) |
| Trust account | The trust | The trustee, according to the trust document | No |
A trust account is not the same as a joint account, where two people both own the account and either can withdraw money. In a joint account, if one owner dies, the money automatically goes to the other owner. In a trust account, the money goes to whoever the trust document names as beneficiaries, which may or may not be the trustee.
A trust account is also different from a payable-on-death (POD) account, where you own the account during your lifetime and name someone to receive it after you die. A POD account is simpler to set up and does not require a trust document, but it gives you less control over how the money is used after you die. A trust account lets you write detailed instructions about when and how the money should be spent.
Frequently Asked Questions
Can a trustee use money from a trust account for their own expenses?
Only if the trust document says they can. Most trusts allow the trustee to be paid a fee for their work, and some trusts allow the trustee to live in a house owned by the trust or use trust money to pay for their own care. But if the trust document does not permit it, the trustee cannot take money for personal use. A beneficiary can sue if they believe the trustee is misusing funds.
What happens if the trustee dies or wants to step down?
The trust document usually names a successor trustee to take over. That person contacts the bank with a death certificate (if the first trustee died) or a resignation letter, and the bank updates the account. If no successor is named, a court may have to appoint one, which can delay access to the money.
Can I change the trust document after the account is open?
If the trust is revocable, yes—the settlor can change it anytime during their lifetime. If the trust is irrevocable, no—it cannot be changed without a court order, and even then only in rare circumstances. The bank does not need to approve changes to the trust document, but you should give the bank a copy of the updated document so they have the current version on file.
Do I need a separate tax ID for a trust account?
Yes, if the trust does not already have one. The bank will ask for a tax ID number when you open the account. If the trust is a revocable living trust and you have not obtained an EIN (Employer Identification Number) yet, you can use your Social Security number instead. If the trust is irrevocable or if you prefer to have a separate EIN, you can obtain one free from the IRS.
What if the trust document is lost or damaged?
Contact the attorney who drafted the trust—they usually keep a copy. If the attorney is no longer in business, check with your state bar association for help locating the original. The bank may allow you to operate the account with a certified copy while you locate the original, but they will want to see the original eventually.