What is a Trust Account?

Definition: An account set up to hold funds for a third party with specific purposes. In other words, it is an account set up by an institution with a predetermined reason and beneficiary.

What Does Trust Account Mean?

Trust accounts are set up by banks or trust companies for their clients or someone related to them. The purpose of this account has to be established when the account is opened and it is normally associated with a particular payment or the fulfillment of a given condition. These accounts are held by a trustee, normally a financial institution, which have a fiduciary duty towards the ultimate beneficiary and the trust holder of the account.

Some of the most common purposes to open a trust account are: a college trust, which is an account set up for a child on its early years to be dispensed when the person attends a university; a tax-bill trust, where money is set aside to meet future tax payments; a real-estate trust, an account set up for a future real estate purchase; a child’s trust, which is set up for minors and redeemed, usually, when they reach legal age.

These are some of the main reasons for a trust account to be opened and maintained; nevertheless, purposes may vary according to the needs of each individual.


Mr. Armstrong is a 35 years old business man living in the city of San Francisco. He has a wife and two kids and an awesome tech business that have been growing profitably for the last 10 years. Mr. Armstrong is currently reviewing his financial plans and goals and as part of his family plan he wants to set up a trust account for each of his kids. After meeting with his banker he decided to set up two trust accounts for each child.

One account will be a wealth trust, which is an account set up to be disbursed when each child reach 25 years old or graduate from college, whichever happens first, to set them up for their new adult life. The other account will be a college trust that will serve as payment for all their university-level studies. He established the condition that the money must be paid directly for educational institutions only. These two accounts will cover what Mr. Armstrong considers as priorities to prepare his children for adulthood.