What Are Trust Accounts?
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What Are Trust Accounts?
For any type of trust, it is usually necessary to set up a trust account. A trust account is the account in which the trust creator (the “trustor”) places the funds to be held for the beneficiary. The person overseeing the trust account is called the trustee.
Thus, the beneficiary does not receive the trust funds directly from the trustor. Instead, it is the trustee who manages the funds and distributes them to the beneficiary, according to the instructions of the trustor.
One of the main purposes of setting up a trust account is so that the trustee doesn’t commingle the funds with their own personal account monies. Also, having a trust account may prevent the beneficiary from trying to collect the money before the trustor wishes. This can help prevent legal issues and trust disputes in the future.
Who Is in Charge of a Trust Account?
The person in charge of the trust account is usually called the “trustee” or the “trust administrator”. This person is in charge of depositing and withdrawing funds from the trust account for the purposes state in the trust documents.
In some cases, an alternate trustee can be named in the trust document, in the event that the main trustee becomes incapacitated for whatever reason. Alternatively, a court can name a trustee if necessary.
Choosing the right trustee is very important for the successful administration of the trust account funds. Generally speaking, the trustee can’t be someone who has a financial interest in the trust funds, or stands to gain in some way from the arrangement. On the other hand the trustee should be someone whom the trustor can rely on to make important decisions on behalf of the trust.
What Are Some Trustee Duties with a Trust Account?
By law, trustees have some basic fiduciary duties with regards to the trust account. These can include:
- Remaining loyal to the trustor and to the purposes of the trust
- Investing the trust fund prudently and according to sound business judgment, especially where no specific instructions are given
- Exercise good faith and fair dealing when handling the trust accounts
- Avoiding personal conflicts of interests
- Avoiding mixing their own funds with those of the trust account funds
Thus, the trustee is expected to use sound judgment and honesty, to ensure that the distributions are made to beneficiaries at the right time, and to see that the trust funds are handled appropriately. On the other hand, it’s best for the trustor to make the instructions as clear as possible for the trustee, so that misunderstandings don’t arise in the future.
What If a Trustee Mismanages the Trust Account Assets?
If the court finds that a trustee has intentionally or negligently mismanaged trust account assets, they may be held liable for any losses caused to the beneficiaries or the trustor. The trustor may then be required to pay monetary damages to reimburse the party or parties for economic losses caused by their mismanagement.
For instance, if the trustee negligently invested the trust funds into worthless stock purchases, they may be required to reimburse the parties for their losses caused by the bad investments. The trustee may be required to pay out of their own pocket for such losses.
Do I Need a Lawyer for Help with Trust Accounts?
Trust accounts are very central to the proper execution of a trust or trust fund. You may wish to hire an estate planning lawyer if you need help establishing a valid trust. Your lawyer can advise you on how to select a trustee who will best represent and execute your personal interests. Also, a qualified trusts attorney can help you file with the court if you need to file a lawsuit regarding a trust account violation or breach.
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Last Modified: 03-13-2015 12:46 PM PDT
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