Just as your business needs a checking account to handle its day-to-day transactions, it also needs a trust account to hold and manage its money from clients. Here are ten tips for setting up and managing your trust account.
What Is A Trust Account?
A trust account is a type of financial account where funds are held for the benefit of a designated person or entity, known as the beneficiary.
Trust accounts can be used for various purposes, including managing assets for minors or individuals with disabilities, distributing income from estates or investments, and mitigating taxes.
The funds in a trust account are managed by a trustee, who has a legal duty to act in the beneficiary’s best interests. However, beneficiaries can also have some say in managing their trust through certain legal documents such as a living trust.
While trust accounts can be beneficial for managing finances and assets, they also come with added responsibility and potential legal complications. It is essential to carefully consider all options before setting up a trust account.
The Ten Things To Remember When Opening A Trust Account
When opening a trust account, it is vital to keep the following things in mind:
1. Get pre-approval
Obtain pre-approval from your financial institution before opening a trust account. This will ensure that you have the necessary bank account and other required accounts set up ahead of time, so you can begin receiving payments as soon as possible after opening the trust account.
2. Get everyone in agreement
Ensure that all parties involved in the trust are on board with how funds will be managed and distributed through the trust account. If you receive money on behalf of an individual or organisation, make sure they understand how those funds will be used and how payouts will be made to them – both during the term of the trust and when it ends.
3. Define the terms
Clearly define the terms of the trust in your legal agreement with all parties involved. This will help avoid confusion or disagreements about how funds should be managed and distributed through the account and what happens when a trust is ended.
4. Make sure you have the resources
Ensure that adequate resources (time and money) are available to manage your trust account responsibly. You will need to be able to keep track of incoming payments, disburse outbound payments on time, and ensure that all records related to the account are up-to-date and accurate at all times.
5. Protect your assets
Protect yourself from personal liability for mismanagement of funds by ensuring that you have proper insurance coverage for your trust account and its assets and legal protections to protect you from any legal disputes that may arise involving the trust.
6. Keep record
Keep good records of all your transactions and communications related to the trust account, including any emails or other correspondence with parties involved in the trust. This will help ensure that everything is documented and accounted for appropriately, which can be necessary if disagreements about how funds have been handled over time.
7. Play open cards
Be open and transparent about all of your dealings with the trust account – both with those who are sending money into it and receiving money out of it. The more open you are about things, the fewer misunderstandings or conflicts there will be regarding what is going on with the account at any given time.
8. Ask for help
Please seek the advice and guidance of financial and legal advisors when opening a trust account, as well as on an ongoing basis once it is open. A good financial advisor can help you navigate all the rules and regulations that apply to trust accounts and offer guidance on how best to manage them effectively over time.
9. Keep calm
Stay calm under pressure, and don’t allow emotions to get in the way of making sound decisions about your trust account – during normal business operations and during times of stress or conflict. If there are disagreements among those involved with the trust, try to approach any settlements or decisions in a level-headed manner rather than letting things escalate into arguments or disputes.
10. A trust is a long-term investment
Remember that your trust account should always be seen as a long-term investment and not simply a short-term solution to cash flow problems. The more proactive you manage your account over time, the better your chances of having it continue to be a successful and profitable operation for many years.
In summary
By following these fundamental guidelines, you can ensure that your trust account is managed as effectively and positively as possible from start to finish – helping avoid potential disputes or legal complications.
Remember to always focus on the long-term outlook for your trust and be prepared to put in the time and resources needed to make it work. With a little effort and care, you can open a trust account that will continue serving you well for many years.
