Account in Trust

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on August 01, 2023

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What Is an Account in Trust?

An account in trust refers to a financial arrangement where a person (the grantor) transfers assets to another individual or entity (the trustee) to manage and hold them for the benefit of a third party (the beneficiary).

It is a legal structure that allows for the protection and controlled distribution of assets according to the grantor's instructions.

This type of account is commonly used for estate planning, asset protection, and managing funds for minors or individuals who may not be capable of handling their financial affairs.

The trustee is responsible for managing the assets, making investment decisions, and distributing funds to the beneficiary in accordance with the terms set forth in the trust agreement.

Types of Accounts in Trusts

Types of Accounts in Trusts

Revocable Trusts

Revocable trusts, also known as living trusts, can be amended, modified, or revoked by the trust creator during their lifetime. These trusts provide flexibility and control, allowing the creator to change their mind about the trust's terms or beneficiaries.

Irrevocable Trusts

Once established, irrevocable trusts cannot be changed or revoked by the trust creator. These trusts provide asset protection and potential tax benefits but come with a loss of control over the trust's assets.

Testamentary Trusts

A testamentary trust is created through a will and becomes effective only after the creator's death. These trusts allow for greater control over asset distribution and can provide support for minors or beneficiaries with special needs.

Special Needs Trusts

Special needs trusts are designed to provide financial support to a beneficiary with disabilities without jeopardizing their eligibility for government benefits. These trusts must adhere to strict legal guidelines to maintain their tax-exempt status.

Charitable Trusts

Charitable trusts are established to benefit a charitable organization or cause. These trusts can provide tax advantages for the trust creator while supporting a meaningful cause.

Establishing an Account in Trust

Selecting a Trustee

The trustee is responsible for managing and administering the trust according to its terms. Careful consideration should be given when selecting a trustee, as their integrity, financial acumen, and ability to manage complex legal matters are crucial.

Identifying Beneficiaries

Beneficiaries are the individuals or organizations that will receive the trust's assets. Clearly identifying beneficiaries in the trust document is essential to ensure the correct distribution of assets.

Determining the Terms and Conditions

The terms and conditions of the trust dictate how the assets will be managed, distributed, and invested. These terms should be carefully crafted to reflect the trust creator's intentions and provide clear guidance to the trustee.

Funding the Trust

Transferring assets into the trust is necessary to establish the account. The types of assets that can be placed in a trust include real estate, bank accounts, investments, and personal property.

Trust Management and Administration

Once established, the trust must be administered and managed according to its terms. This may include investing assets, making distributions to beneficiaries, and filing taxes on behalf of the trust.

Role of an Estate Planning Lawyer in Setting up an Account in a Trust

Legal Consultation and Advice

Estate planning lawyers provide expert guidance on the best type of trust to meet a client's goals and circumstances. They advise on the legal and tax implications of establishing a trust and recommend strategies for optimizing asset protection and tax efficiency.

Drafting Trust Documents

An estate planning lawyer drafts the trust document, ensuring it accurately reflects the client's intentions and complies with relevant state and federal laws.

Ensuring Compliance With State and Federal Laws

Estate planning lawyers help navigate complex trust laws, ensuring the trust is established and administered according to legal requirements. This includes filing necessary documents with the appropriate government agencies.

Coordinating With Financial Institutions

Lawyers often work closely with financial institutions to set up trust accounts and transfer assets into the trust.

Trust Administration and Management Assistance

Estate planning lawyers can assist trustees with the ongoing administration and management of a trust, providing legal guidance and helping to resolve disputes among beneficiaries or address other challenges that may arise.

Pros of Accounts in Trusts

Probate Avoidance

One of the main advantages of establishing an account in trust is avoiding probate, the legal process of distributing assets upon a person's death.

Probate can be time-consuming and expensive, and trusts allow assets to be distributed directly to beneficiaries without court intervention.

Estate Tax Reduction

Trusts can help minimize estate taxes by removing assets from the trust creator's taxable estate. This can result in significant tax savings for beneficiaries, especially in cases where the estate value exceeds the federal estate tax exemption.

Asset Protection

Irrevocable trusts can provide asset protection, shielding assets from creditors and potential lawsuits. This can be especially beneficial for individuals with a high net worth or those in professions with a higher risk of litigation.

Privacy Preservation

Trusts offer privacy by keeping the details of the trust and its assets confidential. Unlike probate, which is a public process, trusts are not subject to public scrutiny.

Control and Flexibility in the Distribution of Assets

Trusts allow trust creators to specify the terms and conditions for asset distribution, providing control over when and how beneficiaries receive assets. This can be particularly helpful in cases where beneficiaries may not be financially responsible or have special needs.

Cons of Accounts in Trusts

Trustee Mismanagement

Poor management by a trustee can lead to financial loss or legal disputes. It is crucial to select a trustworthy and competent trustee to avoid such issues.

Disputes Among Beneficiaries

Conflicts can arise among beneficiaries, particularly if the trust terms are unclear or if beneficiaries feel they have been treated unfairly.

Engaging an experienced estate planning lawyer can help minimize potential disputes by drafting clear and comprehensive trust documents.

Legal Changes and Tax Reforms

Changes to trust and tax laws can impact the efficacy of a trust. It is essential to work with an estate planning lawyer to regularly review and update the trust to ensure it remains compliant with current laws and continues to meet the trust creator's goals.

Trust Modification or Termination Difficulties

Modifying or terminating a trust can be challenging, especially for irrevocable trusts. Working with an estate planning lawyer can help navigate these complexities and explore potential options for trust modification or termination.

Pros and Cons of Accounts in Trusts


An Account in Trust is an invaluable estate planning tool that offers numerous benefits, including probate avoidance, tax savings, asset protection, and privacy preservation.

Different types of trusts, such as revocable, irrevocable, testamentary, special needs, and charitable trusts, cater to varying goals and circumstances.

Estate planning lawyers play a crucial role in establishing and managing trusts by providing expert guidance, drafting trust documents, ensuring legal compliance, and assisting with trust administration.

It is essential to carefully consider potential challenges, such as trustee mismanagement, beneficiary disputes, and legal changes, and work closely with an experienced estate planning lawyer to regularly review and update estate plans and trusts to ensure they remain effective and compliant with current laws.

Account in Trust FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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