What Is the Difference Between a Trust Account & an Escrow Account?

In financial circles there is often a need to store money, sometimes for long periods of time. When a person wants to store cash safely, banks offer to create an account and store the funds for checking, savings or investment. But sometimes people or organizations want to store someone else's money, money that does not belong to them but still needs to be managed by them for a period of time. In this case financial institutions allow for the creation of trust and escrow accounts.


Trust and Escrow Accounts

There is no important legal difference between trust and escrow accounts. In many circumstances people use the two terms interchangeably. The word escrow simply means to put something in a trust for a specific reason. When used as a noun, it refers to a note, bond or deed that represents the value in the account itself. But it does not mean something additional or different to a trust account. Both are used often when assets of considerable value are sold and change hands.

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Although there is no difference between trust and escrow accounts, the terms may be used in different circumstances. For example, a trust account is often associated with inheritances when a person provides money for a beneficiary in a will but does not grant this money directly to the beneficiary, choosing to put it in a trust instead. Escrow accounts, on the other hand, are most often associated with things like mortgages and house sales, mostly because the companies in charge of managing the process are known as escrow companies.



Title and escrow accounts are governed by a variety of laws, but these laws are decided by state governments, which means there can be a lot of difference between the ways trusts and escrow accounts are created between different states. This also affects the terms used. Some state laws use the term escrow to describe the accounts affected, while others prefer the word trust instead. Both mean the same thing in the same circumstances, but the legal language is slightly different.


Agents and Trustees

An escrow account is typically managed by an escrow agent, while a trustee oversees a trust. Again, there is no particular difference between the two terms, and the responsibilities each has are typically the same. Escrow agents may be connected to escrow companies that deal with many different accounts at the same time, but this is still a preference for names and not an indication that an agent has a different role than a trustee.