What Is a Trust Checking Account?

The first thing to know about a trust checking account is that it is not a trust. A trust is a legal agreement created among three parties – the grantor or trustor (you), the trustee (the person or persons you name to manage your trust) and your beneficiaries (the people who will receive the assets in your trust). In certain cases, the trustor may also be the trustee.

A trust checking account is a specific type of “account in trust,” meaning it’s something placed inside your trust. It can be an existing checking account or one you establish for that purpose. Trust checking is used by your trustee to pay expenses related to running your trust and to disperse assets from your trust to your beneficiaries upon your death.

Trustees have a legal obligation to act for the benefit of the entire trust, including the trust checking account. This makes a trust checking account an easy, safe and legal way for your trustee to manage your assets for the ultimate benefit of your beneficiaries without involving outside funds or accounts.

Trust checking also makes it much easier to track financial activity related to the trust and ensure all activity follows the guidelines you establish when you set up your trust. As a bank deposit account, your trust checking account is insured by the Federal Deposit Insurance Corporation (FDIC); more on this, below. 

You (or your trustee) can set up a trust checking account as part of the trust-making process or your trustee can open an account after you die, following your instructions as outlined in the trust agreement. Only your trustee (or you) can establish trust checking. Beneficiaries (unless one is a trustee) have no say in the matter.

Since not all brick-and-mortar or online banks provide trust checking, it’s important to ask. In addition, ask about a minimum opening deposit, minimum balance, potential fees and what documentation you will need to provide to open or transfer an account.

Banks often require the original trust agreement, one or more valid forms of identification and IRS form SS4, the document the IRS issues when the tax ID number is assigned to the trust. Once complete, keep all related paperwork together with the original trust agreement. Make sure the account information, including the name of the bank, is part of the trust’s property list.

You can fund your trust checking account as part of the trust-making process, designate funds from a life insurance policy or other assets or specify how you want your trustee to fund the account. Since checking accounts pay little or no interest, it’s not wise to put more money into trust checking than is needed to pay bills and expenses.

Your trustee must follow your instructions regarding the use of your trust checking account. By law only your trustee can sign checks and move assets into or out of trust checking. Note: If you have a living revocable trust, you serve as trustee until your death.

Your trust checking account will be titled in the name of the trust and have the same tax ID number as the trust. Even if there are multiple trustees, banks usually require only one signature on a check. 

Typical expenses paid through trust checking include debts, utility bills, insurance, real estate and other taxes, funeral expenses, attorney’s fees and any fees you stipulate to be paid to your trustee. Trust checking may also be used to distribute assets from the trust to beneficiaries after all expenses have been paid. For that reason, it’s extremely important to keep meticulous records of all transactions.

The amount of FDIC insurance coverage depends on the type of trust as well as the number of beneficiaries and their status. For a revocable trust, while you are alive, FDIC coverage is $250,000. After your death your beneficiaries are considered individual owners and each is covered up to $250,000. With an irrevocable trust, during your lifetime the trust is covered for $250,000. After your death your beneficiaries are covered for $250,000 each only if there are no eligibility conditions on them. This is rarely the case with an irrevocable trust so, in most instances, the total amount of insurance is limited to $250,000. (For more read: Does the FDIC cover identity theft?)

Since trust checking is an asset of a trust, which is a complicated legal document, it’s always best to seek advice from a trusts-and-estates lawyer when creating the account to ensure your wishes will be honored when the trust becomes effective.

Instruct your trustee to keep copies of checks, receipts and other documents in a safe place so they can be used to back up any claims made about how assets in the account were used.