What Is a Trust Checking Account, and How Does It Work?

A trust checking account is a bank account held by a trust that trustees may use to pay incidental expenses and disperse assets to a trust's beneficiaries, after a settlor's death. Trust checking accounts let trustees expeditiously conduct these transactions without involving outside funds, while making it easy to track the financial activities related to the trust. And as bank deposit accounts, trust checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC).

Key Takeaways

  • A trust checking account is an account held within a trust, that is used by trustees to facilitate transactions, as mandated by the trust agreement.
  • Trust checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC).
  • Such accounts may be infused by assets from multiple sources, including cash savings and insurance policies, and other places.

Setting Up a Trust Checking Account

Although settlors may establish trust checking account during the trust creation process, while they're still living, alternatively, trustees can open such accounts after a settlor dies, by adhering to the instructions outlined in the trust agreement.

Not all banks--be they brick-and-mortar or online, provide trust checking services, therefore it's vital to inquire about this early on. It's likewise essential to ask about minimum opening deposits, minimum balance requirements, potential fees, and any documentation needed toestablish such an account. These may include the original trust agreement, one or more valid forms of identification, and IRS form SS4, which is issued when the tax ID number is assigned to the trust. Trust checking accounts are titled in the name of the trust and have the same tax ID number. Tax havens like Jersey are often used for trust checking.

Funding Trust Checking

Trust checking account can be funded in numerous ways. For example, a settlor can add money to the account, in dribs and drabs, throughout the trust-creation process. Alternatively, funds may include payouts from life insurance policies, or multiple other sources. Whatever the case my be, funding methodology options should be discussed with trustee, so they know how to proceed as per the settlor's wishes. In fact, by law, a designated trustee alone may access trust checking account, to cut checks and replenish funds as needed. Even if there are multiple trustees, banks usually require one specific signature to endorse all checks. 

Note: It's important to remember that checking accounts pay little or no interest, therefore its wise to restrict the trust checking balance to the amount needed to pay bills and cover ancillary expenses.

Expenses Paid Through Trust Checking

Typical expenses paid through trust checking include debts, utility bills, insurance, real estate and other taxes, funeral expenses, and attorney’s fees. Trust checking may also be used to distribute assets from the trust to beneficiaries after all expenses have been paid, making it essential to keep meticulous records of all transactions.

FDIC Insurance Coverage

The amount of FDIC insurance coverage depends on the type of trust as, the number of beneficiaries, and their individual statuses. For a revocable trust, while settlors are alive, FDIC coverage is $250,000. After one's death, his or her beneficiaries are considered individual owners, consequently each one is covered up to $250,000. With irrevocable trusts, during a settlor's lifetime the trust is covered for $250,000.

The Bottom Line

Trust checking is an indispensable asset of a trust. Therefore it’s prudent to seek advice from a trusts-and-estates lawyer when creating such an account, in order to ensure your wishes will be honored when the trust becomes effective.

[Important: Settlors should instruct their trustees to fastidiously maintain copies of checks, receipts and other documents, in order to prove how assets were used.]

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