What Is a Trust Account and How Does It Work?

There are many facets to accounting; trust accounts are one of them. If you’re new to trust accounts, then your understanding of them may only be that the wealthy set them up for their children’s inheritance. Well, this isn’t all that accurate. While they can be used in this manner, they are more useful and practical in a variety of other circumstances.

The truth is that anyone can set up a trust account, and it can be used for a variety of reasons, both personal and business. If you need to set up a trust or would like to learn more about trust accounts and determine if one is right for you, then you’ve landed on the right page. Continue reading to learn what a trust account is and how it works.

Table of Contents

What is a Trust Account

A trust account is a legal arrangement where assets are held by a third party on behalf of another party. The third party is known as the trustee, the other party is the beneficiary, and the person creating the trust is referred to as the settlor. The trust beneficiary can be a group or an individual, and the assets can be anything of value, including cash, real estate, stocks, bonds, jewellery, etc.

There are many types of trust accounts, each with its own specific procedures, regulations, and tax rules. Some of the most common types of trusts in Australia include living trusts, charitable remainder trusts, irrevocable trusts, special needs trusts, testamentary trusts, and revocable trusts.

The type of trust you choose will depend on what you want to do with your assets. You can find out more about each type of trust on the AOT website.

How Does a Trust Account Work?

Despite the various types of trusts that exist, they all operate under the same basic concept. This being said, they each require a settlor to provide the funds, a trustee to hold the funds and a beneficiary to receive the funds.

We all work with trusts on a daily basis without even realising it. For example, how many times have you given your child’s grandparents money to buy things for your kids while they babysit? In this example, you are the settlor, your child’s grandparents are the trustee, and your children are the beneficiaries. This example, albeit basic, is essentially how trusts work.

Trusts are great for passing on assets to beneficiaries safely. They are also handy for separating one’s assets from his or her portfolio; shielding said assets from potential creditors or plaintiffs. In some industries, such as the real estate industry, trusts accounts are a legal requirement and have to be audited throughout the year to ensure funds are properly kept and compliant with legislation.

How Do you Set Up a Trust Account?

Grow Advisory Group can easily set up a trust account for you. To create a trust account, the following information is required:

the settlor’s details
the name and description of the trust,
the trustee’s details
the beneficiary’s or beneficiaries’ details,
assets owned by the trust,
duties of the trustee, and
instructions as to what should happen if any party were to pass away or become incapacitated.

Conclusion

A trust account can be a valuable tool for those with assets. They can designate who receives your estate, protect your assets and business from creditors or plaintiffs, and also provide many tax advantages.

At Grow Advisory Group, setting up and managing trust accounts is just one of the many accounting services we offer for individuals and businesses. If you would like to enquire about setting up a trust for yourself or your business, then contact us today.

We have extensive knowledge in setting up trust accounts and can advise on which type of trust will best suit your wishes. We also provide an affordable trust account audit service to ensure your account is compliant and correctly maintained.