A trust account is a legal arrangement through which assets are held by a third party for the benefit of another party (either an individual or a group). The three main parties involved in all trust funds are the grantor or settlor, the beneficiary, and the trustee.
The grantor establishes the trust fund. He or she provides the assets to be held in trust; he or she can donate cash, stocks, bonds, real estate, fine art, or any other valuable object or entity. The grantor determines the terms by which the trust fund is to be managed.
The beneficiary is the person or group for whom the trust fund is established by the grantor. The beneficiary is meant to benefit from the assets in the trust, even while he or she is not the owner of said assets. This occurs by way of the management terms set by the grantor when the trust fund was created.
The trustee can be an individual, a group of trusted advisers, or an organization or other entity and is effectively the trust fund account manager. The trustee is responsible for ensuring that the trust fund maintains its function and duty to the beneficiary as explained in the trust fund documentation and under the law. Note: some trusts call for trust assets to be managed directly by the trustee; however, others require that they be managed by a qualified investment advisor designated by the trustee. When a brokerage company coordinates a real estate trust fund account, the broker assigned to the account is considered the trustee, making the broker the primary manager of the money in the account.
A trust fund is often used as an estate planning tool. It is used to minimize taxes and avoid probate, which is the legal process used to distribute the assets of a deceased person. There are several types of trusts that serve a variety of purposes. An escrow account, for example, is one type of real estate trust funds. Through this type of account, a brokerage company engages a mortgage-lending bank to hold funds in escrow—to be used to pay certain fees such as property taxes and homeowners’ insurance charges on behalf of a homebuyer. Depositing money into a real estate trust fund account allows you to supply it to a beneficiary in a regulated way, such that it can only be used for certain purposes and at certain times.
There are many benefits to having a real estate trust fund account. One significant benefit is that the trust fund account keeps the beneficiary’s money set apart from the broker’s money to ensure that any money needed for real estate transactions initiated by the beneficiary remains secure. Another major benefit is that all the money deposited into a federally insured bank—that is, a bank backed by the Federal Deposit Insurance Corporation (FDIC)—is itself insured.
An experienced real estate attorney can help you understand the laws that govern real estate trust fund accounts. Reeves Law, PLLC, located in Austin, Texas, handles a variety of legal cases, including many involving real property. Reeves Law provides services in areas such as estate planning, asset protection, will preparation, and trust preparation. The professionals at Reeves Law are committed to providing personalized attention and competent guidance to every client; the experienced team will help you understand the complexities of real estate law that apply to your case. Contact Reeves Law for more information and a free consultation.