A trust account is a helpful tool where assets are held and managed by a trustee on behalf of the owner for the benefit of the designated beneficiaries. That’s why many individuals in Washington prefer a trust account for the transfer of assets. The owner can choose either an individual or a group of individuals to manage the assets. However, you must be aware of how trust accounts work and how you can benefit from them.
If the asset involved is real estate, it is advised to hire a real estate accounting firm in Seattle, Washington, for its expertise. They can skillfully handle and effectively manage the asset distribution.
Understanding the rules of a trust account
Setting up a real estate trust can allow individuals to ensure the inheritance of property by the intended beneficiary whenever the time comes. Therefore, a trust account plays a significant role in estate planning. However, the following are the rules of a trust account.
- The creator of the trust, also known as the grantor or settlor, funds the trust, i.e., the asset is transferred to the trust. To manage the real estate, the ownership also has to be transferred to the trust.
- The trustee is required to be an adult person who is mentally competent and responsible for handling the trust.
- The trustee bears the full authority to make any changes to the account until and unless mentioned otherwise in the agreement.
- It is the fiduciary duty of a trustee to act in the best interests of a beneficiary.
- As per the state’s laws and regulations, the trustee is required to file annual tax returns.
- The owner of the trust has to make all the distributions and expenses related to the beneficiary from the trust account only.
Different types of trust accounts
Although the type of trust available depends on the laws of the state where you reside, trusts can be classified into four different types.
- Living trust: A living trust remains enforceable during the entire lifetime of the settler, i.e., the creator of the trust.
- Testamentary trust: A testamentary trust becomes enforceable after the death of the settler.
- Revocable trust: A revocable trust allows the settler to add clauses that enable them to change or terminate the trust agreement.
- Irrevocable trust: Under an irrevocable trust, a settler cannot make any changes in the agreement or terminate it after the transfer of property as the ownership gets transferred to the trust.
Steps of setting up a trust account
Depending on the state you live in, the process of setting up a trust can be as follows.
- The first step would be to select a trust that suits your needs. As allowed by the state you live in, you can choose any of the four types of trust accounts mentioned earlier.
- The next step would require you to appoint a trustee who will manage your trust assets and ensure the execution of terms and conditions. You can also assign an alternate trustee to manage the trust in case of the trustee’s incapacity.
- After that, you will have to determine the asset, which can be a bank account, stocks, vehicles, real estate, etc. The legal title of the asset has to be transferred to the trustee.
- Next, you will have to draft and file the documents as per the laws of the state and get them signed and notarized correctly.
- Lastly, you will have to visit the bank with all the trust documents and set up a trust account.
Importance of a trust account
A trust account can be important in many ways, as it offers several benefits to the settler and the beneficiary. However, the most significant of them are as follows.
- A trust account simplifies and speeds up the distribution of assets, thereby avoiding probate.
- Creation of trust can provide you with tax benefits.
- A significant benefit of a trust is that it can protect assets from lawsuits and creditors.
- A trust provides you with better control over the distribution of the assets.
- A trust protects the interests of the beneficiaries.
- A trust allows you to maintain the privacy of your assets, as trusted assets cannot become a public record.
Final thoughts
In short, a trust is a separate account held and managed by an impartial third party acting as an intermediary to handle the trusted assets responsibly. Therefore, a real estate accountant is the perfect choice for managing your real estate property for onward inheritance by the specified beneficiaries.
