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. Here are some of the main features of a trust:
Ownership of the assets must be transferred to the trust. The trust has no power until this occurs. 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 the 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.