A trust account is a legal arrangement through which funds or assets are held by a third party (the trustee) for the benefit of another party (the beneficiary). The beneficiary may be an individual or a group. The creator of the trust is known as a "grantor" or "settlor."
Main features of a trust:
- Ownership of the assets must be transferred to the trust. The action is called "funding the trust."
- The trustee must be a mentally competent adult and can be anyone the grantor trusts and who has accepted the responsibility of handling the trust account.
- Subject to terms of an agreement that states otherwise, the trustee has the authority to make changes to the account, including to transfer assets, close the account, open a sub-account and name additional beneficiaries or another successor trustee.
- The trustee has a fiduciary duty to consider the best interests of the beneficiaries first in any decisions.
- The trustee is responsible for annual tax returns and may be required to file regular accountings at the request of beneficiaries, depending on state law.
- All distributions to the trust beneficiary and other related expenses must be paid from the trust account.