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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).
Although settlors may establish trust checking accounts 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 essential to ask about minimum opening deposits, balance requirements, potential fees, and any documentation needed to establish 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.
Settlors should instruct their trustees to fastidiously maintain copies of checks, receipts, and other documents, to prove how assets were used.
Trust checking accounts 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 may be, funding methodology options should be discussed with the trustee so they know how to proceed as per the settlor's wishes. In fact, by law, a designated trustee alone may access a 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.
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.
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, the 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.
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,