how an account in trust works
accounts in trust can hold different assets including cash stocks bonds mutual funds real estate and other property and investments 1 trustees can vary as well they can be the person opening the account someone else they designate as a trustee or a financial institution such as a bank or brokerage firm trustees have the option to make certain changes to the account in trust these can include naming a successor trustee or another beneficiary a trustee may even close the account in trust or open a subsidiary account to which they can transfer some or all of the assets in the account in trust however the trustee is obligated to follow the instructions of the document that established the account in trust types of accounts in trustthe specifics of accounts in trust can vary depending on the type of account terms outlined in any trust agreements as well as applicable state and federal laws one example of an account in trust is a uniform gifts to minors act ugma account this type of account in trust created allows minors to legally own the assets held in these accounts however they can t have access to the account s principal and income until they reach legal age this type of account in trust is typically opened by parents to fund their children s higher education expenses and to secure certain tax protections 1a uniform transfers to minors act utma account differs from a ugma account in that it allows for the donation of non basic assets such as life insurance and stocks 1ugma accounts are managed by a custodian who is appointed by the donor the custodian must manage the account for the benefit of the minor 1 they can invest the funds withdraw money within limits for the minor s care and needs also contributions can be made to the account with no limits another type of account in trust is a payable on death pod trust also called a totten trust these accounts are essentially bank accounts with named beneficiaries who can legally take possession of the trust s assets and income upon the death of the individual who opened the account pod trusts are protected by the federal deposit insurance corporation fdic as are traditional bank accounts 2 in addition this type of account does not need to clear probate for assets to transfer to the rightful beneficiary upon the death of the initial owner 3there are events however that prevent the named beneficiary from obtaining the full value of the account upon the death of the account owner in community property states the spouse of the decedent may be entitled to half of the account although the spouse is not entitled to funds accumulated before marriage also the beneficiary does not receive a benefit from a jointly owned account if the joint owner is still living the benefit is payable upon the death of the last surviving owner in the housing world an account in trust is a type of account usually opened by a mortgage lender the lender uses this account to pay property taxes and insurance on a homeowner s behalf this type of account in trust is also called an escrow account and funds to be deposited into it are usually included in the monthly mortgage payment the two main types of escrow accounts are the purchase escrow account and refinance escrow account a purchase escrow account holds funds related to the purchase of a home and is managed by an escrow agent earnest money presented by the buyer to the seller and other real estate transaction fees such as loan fees agent commissions and appraisal fees are held in a purchase escrow account a refinance escrow account much like a purchase escrow account holds fees related to the transaction which in this case is the refinance of a home such fees include appraisal and attorney fees 4