How Do Interest Bearing Trust Accounts Work?

A trust is a legal entity, somewhat similar to a corporation, which can own property just like a person. A trust account is one in which the funds earn interest in the same way an interest-bearing account does, though who can use that money and when differs from, say, an interest-bearing checking account. Talk to an attorney or financial adviser about interest-bearing trust accounts, and any laws or regulations that apply to them in your state.



A trust account exists between two main people: the beneficiary and the trustee. The trustee is the person who is charged by the trust creator to manage the money or property the trust owns. The beneficiary is the person who has the benefit of using trust property. For example, if you are the beneficiary of a trust account, the trustee has to manage the funds for your benefit, but cannot use those funds for himself. You, on the other hand, do not own the trust funds, but are entitled to use them under the terms and conditions of the trust.


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Trust Accounts

A trust account is simply a bank or deposit account in which the money is owned by the trust, managed by the trustee and held for the benefit of the beneficiary. For example, a grandparent might open a trust account for a grandchild, naming the bank's trust department as the trustee. In creating the trust, the grandparent may dictate that the child cannot use the trust funds until he graduates from college, and can only receive a certain amount of money each month after that period. It is the trustee's responsibility to ensure the beneficiary does not receive the money until those conditions take place. The beneficiary does not own the money, but can use it if he satisfies the trust conditions.


Interest-Bearing Trust Account

Like other bank accounts or deposit accounts, an interest-bearing trust account earns interest on the funds deposited into it. Interest rates on deposit accounts differ, but it is generally a relatively small percentage paid as an annual percentage yield, or APY. This is a measurement of the amount of money the bank pays to the account holder over the course of an entire year. In trust accounts, the interest is generally paid to the account beneficiary.


Professional Trust Account

In some situations, professionals hold money in trust for their beneficiary clients. For example, if you hire a real estate agent and give that real estate agent funds to use on your behalf, the agent may open a trust account on your behalf. When the agent opens such an account, she must name the beneficiary of the interest earned on the deposit made, as well as account for how all funds are used. Attorneys also typically use interest-bearing trust accounts to hold client retainers, settlements or other monies the attorneys hold on the client's behalf.